Estimation of timber supply and demand for Germany with non-stationary time series data

Abstract

The present paper reports on the estimates of the effects of the explanatory variables on timber supply and demand in Germany using a cointegration approach. The analysis of wood markets in German spoken countries has been the topic of a number of studies since the 1980s (e.g. BERGEN et al., 1988, STEINMEYER, 1991; MOOG, 1991; BERGEN et al., 2002, SCHWARZBAUER, 2007; BERGEN, 2012). Previous studies have increased our understanding of the relationship affecting timber markets in these countries. However, the developments in time-series methods can provide more accurate estimates (BAEK, 2007; SONG et al., 2011; GONZALEZ-GOMEZ et al., 2013). Consequently, we address the problem related to spurious regression by first verifying that the variables included in the estimation of demand and supply functions are not stationary (table 1 and table 2). Therefore, we need to properly account for the presence of non-stationary process, i.e., in order to avoid problems of spurious regressions we test for cointegration using the ARDL approach (table 3). Once we have found a statistical relationship between the variables included in both the supply and demand functions the next step is to estimate the coefficients and elasticities (table 4 and table 5). As a result, the estimated elasticities provide more reliable understanding of the timber markets. The supply and demand determinants and their elasticities are accurate and can be used to evaluate how sensitive the supplied and demanded quantities are to changes in the explanatory variables. The results are in line with the previous results in forest economics literature (table 6), i.e., either timber prices increases or the existence of salvage caused by storms rise the quantity of timber harvest. On the contrary, the increase in harvesting costs reduces the timber supply. Regarding the demand determinants, while higher prices and interest rates reduce the timber demand, economic growth and a rise in the price of imported timber affect positively timber demand.