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Saturday, 3 December 2016
Examining hardwood pulp and ethanol prices for improved poplar plantations in Canada
Published Date September 2016, Vol.70:9–15,doi:10.1016/j.forpol.2016.05.006 Author
J. Work
F. Qiu
M.K. Luckert,
Department of Resource Economics and Environmental Sociology, University of Alberta, Edmonton T6G0N4, Canada
Received 18 September 2015. Revised 14 March 2016. Accepted 11 May 2016. Available online 24 May 2016.
Highlights
Poplar plantations can be used to produce pulp or ethanol.
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Pulp and ethanol prices are mean reverting and exhibit time-varying volatility.
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Mean reverting prices support producer investments and ease policy development.
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Volatilities of pulp and ethanol prices are persistent; pulp prices also respond to external shocks.
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Volatility makes options important for producers and complicate impacts of policies.
Abstract
Temporal variation in prices is an important factor that influences returns on investments and decisions made by policy makers. This study investigates the behaviour of two output prices potentially associated with growing improved poplars in Canada: hardwood pulp and ethanol. Time series techniques are used to assess the processes and volatility of hardwood pulp and ethanol price series. The findings indicate that price series for hardwood pulp and ethanol are best characterized by mean reverting processes around constant averages, indicating more predictability for poplar producers than would be the case for random walks. However, the results from the volatility analysis suggest substantial uncertainty for producers. The volatility of both markets is found be to be highly related to past volatilities, and therefore persistent. To the extent that future prices are more volatile, the importance of producers considering multiple product options for pulp plantations increases, as do complexities for policy makers to predict the impacts of policies to support biofuels.
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