Are Trends Stochastic or Deterministic? A Reappraisal of Persistence in Natural Resource Prices

Abstract

Whether trends in natural resource prices are stochastic or deterministic is a contentious issue. To resolve this, a number of studies have used the method of integrability to the price series. However, integration is a linear concept. Various studies have suggested that the dynamic path of natural resource prices can be nonlinear, thereby making the choice of integrability methods inappropriate. Using the concept of summability, which is a generalization of integrability, we can appropriately characterize the stochastic properties for a nonlinear process. The results from this analysis find considerable evidence of persistence in natural resource prices.