A Monthly Model of the United States Demand for Softwood Lumber Imports

Abstract

Abstract To analyze monthly imports of softwood lumber in the United States, five alternative hypotheses have been formulated and tested with monthly data relating to the period January 1965 to August 1978. The selected hypothesis suggests that imported lumber is only an imperfect substitute for domestically produced lumber. In addition, the decision to import softwood lumber depends upon importers' expectations regarding future levels of construction activity, domestic and foreign prices of softwood lumber, and domestic price of other goods. Expectations are adjusted from month to month by a constant fraction of the relative difference between observed and previously expected levels of the variables. This hypothesis led to a model expressing imports in a given month as a function of construction activity and prices in the same month, and of imports in the previous month. The resulting model had good statistical characteristics and provided the most accurate postsample forecasts. The results indicated that imports are more responsive, in terms of partial elasticity, to the price of domestic softwood lumber than to any other factor. Other things being equal, a 10 percent rise in domestic price leads to a long-term 11.6 percent increase in imports. The same rise in import price, which might result from a 10 percent increase in foreign price or from an equal decline in the value of the U.S. dollar, leads to a long-term decline in imports of 4.5 percent only. A similar decrease in imports would result from a 10 percent increase in the price of other U.S. goods which behave as complements for imported softwood lumber. A 10 percent inflation in all prices tends to cause as increase in imports of 2.8 percent. Full adjustment of imports to changes in construction activity and prices takes some 2 months. Construction activity and price variation explain most of the seasonal fluctuations in softwood lumber imports. Residual monthly deviations captured by dummy variables indicate that, other things equal, imports tend to be higher in February, March, June, and July than during the rest of the year. Forest Sci. 25:641-655.