Modelling and simulation of timber prices for forest planning calculations

Abstract

The variation in timber prices is one of the main sources of uncertainty in forest planning. Timber prices in Finland are modelled in this study for the purposes of forest planning calculations. The model constructed consists of two different processes, one for price peaks, and the other for the rest of the time series. Modelling of price peaks, i.e. the exceptionally high timber prices in the early 1950s and mid‐1970s, is important especially when studying the adaptive behaviour of forestry decision‐makers. The AR(1) model is used in modelling the rest of the time series. The model can be used to simulate realistic future timber price scenarios, thus enabling the study of uncertainty in forest planning caused by timber prices. Although timber prices in Finland are used, similar methods could be applied in many other countries, too. The modelling approach presented could also be applied in simulating the prices of other raw materials, e.g. oil and some metals.