Are Fruit and Vegetable Prices Non-linear Stationary? Evidence from Smooth Transition Autoregressive Models

• Published in: Economics bulletin Vol. 31; no. 1; pp. 189 - 207
• Main Authors: Zeng, Jhih-Hong, Chang, Chun Ping, Lee, Chien-Chiang
• Format: Journal Article
• Language: English
• Published: AccessEcon 2011
• Series: Economics Bulletin
• Subjects: Fruit price; Non-linear stationary; Smooth transition autoregressive model; Taiwan; Vegetable price
• ISSN: 1545-2921; 1545-2921

Over the last decade, there has been a growing interest in investigating agricultural commodity prices. We apply two more powerful smooth transition autoregressive models of the non-linear unit-root test - namely, the ESTAR model of Kapetanios et al. [Journal of Econometrics (2003)] and the LSTAR model of Leybourne, et a . [Journal of Time Series Analysis (1998)] - with a view to investigating non-linear stationarity for the retail prices of 8 major kinds of fruit and 18 major kinds of vegetable in Taiwan. The empirical evidence clearly finds that the Kapetanios et al. model provides solid, substantive evidence in favor of a non-linear mean-reverting adjustment for the individual price of 4 kinds of fruit and 5 kinds of vegetable. However, when we employ the Leybourne et al. model, we find that any such similar evidence of non-linear stationarity is considerably weaker. Finally, compared with the traditional linear unit root tests, it is important to note here that, all in all, the non-linear unit root tests do indeed provide much more evidence of the stationarity, albeit to varying degrees. This paper offers some policy implications.