Trends in Natural Resource Commodity Prices: Deterministic or Stochastic?

The type of trend, be it stochastic or deterministic, exhibited by the price of a resource commodity should play a critical role in the development and empirical verification of theories which may explain its long run behavior. The nature of the trend, however, can only be discerned through empirical testing. To this end, we present a menu of unit root testing procedures for characterizing observed trends in any economic time series, including natural resource commodity prices. We examine the prices of 11 resource commodities. The evidence suggests that five price series exhibit stochastic trends, while the remaining six price series appear to be stationary around a deterministic trend