Classifying and modeling nonlinearity in commodity prices using Incoterms

ABSTRACT

This paper proposes a novel approach of classifying and modeling the nonlinear behavior of commodity prices using regime-switching models with exogenous transition variables. The approach rests on using the International Commercial Terms (Incoterms), also known as border prices, to classify commodities in groups that tend to display similar dynamics. The suggested border price classification is useful in identifying the key exogenous driving variables in each group. In particular, the classification suggests that inflation and oil price are the best transition candidates that are capable of capturing the nonlinear dynamics of free on board (FOB) and cost insurance and freight (CIF) prices respectively. Our statistical linearity tests and estimation results confirm this prediction and highlight the importance of the suggested border price classification in improving our understanding of the behavior of commodity prices.     

The Fisher effect: new evidence and implications

Using monthly data in the 1980s and early 1990s, our results do not support the short-run Fisher effect since short-term interest rates are associated with negligible changes in expected inflation. However, inflation and nominal interest rates exhibit common stochastic trends in the long run. Consequently, the correlation between nominal interest rates and inflation rates increases with maturity until they move in a one-to-one relation at long horizon. This is evident by the correlation coefficients of the Johansen test for cointegration that increase with the maturity of US government securities from 2 to 5 years.     

Absorptive Capabilities,FDI, and Economic Growth in Transition Economies

This article advances the literature on economic growth and Foreign Direct Investments (FDI) in transition economies by incorporating data on “absorbtive capabilities” of the host economy including R&D indicators and by enhancing the quality of data on FDI. We explore whether countries with accumulated technological and innovative capabilities gain significantly more from FDI. We find that FDI exerts an exogenous positive impact on economic growth, while FDI tends to have a larger impact on economic growth when there is sufficient absorptive capacity and when occurring in technologically more advanced transition economies. The results are robust to different specifications and consideration of endogeneity.