Bootstrap testing for cointegration of international commodity prices

Abstract

This paper investigates cointegration with respect to nine commodity groups traded on international markets. Nonparametric bootstrapping is utilized in the testing procedure. Of the 21 pairs of price series, investigated here, for 13 the no-cointegration null hypothesis is rejected in favour for the cointegration of the series. In addition to five out of the remaining eight cases that were not cointegrated, a plausible explanation is the prevailing trade policy. Thus a great majority of the institutionally nonregulated cases turn out to get empirical support for being cointegrated. An important statistical finding is that the augmented Dickey-Fuller test for cointegration (CRADF) generally yields p-values that are close to the p-values obtained by the bootstrap testing. But once they differ substantially, it is usually an indication of irregular periods (e.g. structural changes) in the series. The paper conducts also a Monte Carlo simulation experiment to investigate the power and size properties of the tests. Generally the results indicate that the test procedures have pretty low power in small samples. Bootstrapping improves the testing somewhat by leading consistently to a bit more powerful inference.