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Conference Proceeding

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This paper examines the Prebisch-Singer Hypothesis employing new time series procedures that are robust to the nature of persistence in the commodity price shocks, thereby obviating the need for unit root pretesting. Specifically, the procedures allow consistent estimation of the number of structural breaks in the trend function as well as facilitate the distinction between trend breaks and pure level shifts. In comparison with past studies, we find fewer cases of commodities that display negative trends thereby weakening the case for the Prebisch-Singer Hypothesis. Finally, a new set of powerful unit root tests allowing for structural breaks under both the null and alternative hypotheses is applied to determine whether the underlying commodity price series can be characterized as difference or trend stationary processes. Relative to the extant literature, we find more evidence in favor of trend stationarity suggesting that real commodity price shocks are mostly of a transitory nature.


Copyright 2011 by Atanu Ghoshray, Mohitosh Kejriwal, and Mark Wohar. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.

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