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    Classifying and modeling nonlinearity in commodity prices using Incoterms

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    Date
    2019
    Author
    Fahmy, Hany
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    Subject
    Prices; 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. KEYWORDS: Incoterms, border prices, commodity prices, regime switching, smooth transition regression JEL CLASSIFICATIONS: C10, C22, E30, F00, F10
    Description
    The file associated with this record is the original manuscript version of the article, previously titled "Understanding the Behavior and Co-Movement in Commodity Prices using Incoterms". The final authenticated version is available at: https://doi.org/10.1080/09638199.2019.1629616.
    URI
    https://viurrspace.ca/handle/10613/13983
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