An Analysis of the Pass-Through of Exchange Rates in Tropical Forest Product Markets: A Smooth Transition Approach

This paper assesses exchange rate pass through for forest product prices, namely sawnwood, plywood, lumber spruce and logs prices by incorporating smooth structural changes. The major countries investigated are the USA, Japan (Tokyo), Nigeria (Sapele), Malaysia and Gabon and similar or identical products that are traded are examined. In keeping with Hanninen et al.(2000, 20006), paper examines regime-specific ERPT effects. Results suggest evidence for the convenience of the STAR type models (SETAR and LSTAR) to model deviations from LOP in a nonlinear fashion for tropical forest product markets. Reasonable estimates of the threshold values that may be a representation of transaction costs that are in line with the theoretical arguments in international trade were found. It was also observed that the values of threshold variables vary hugely across different countries and also the impulse responses analysis for each price pairs are also supporting the changing behavior of price ratios in high and low regimes that may be regarded as another justification to use models accounting for structural changes to model LOP and/or ERPT in a nonlinear fashion