Dynamic Causal Relationship between Imported Pulp and Wood Chip Prices

Abstract

The purpose of this study is to investigate the dynamic causal relationship between imported pulp and imported wood chip prices. Results of the VAR model and the Granger causality test showed that the imported pulp price had a significant effect on the imported wood chip price, but the imported wood chip price did not affect the imported pulp price. This result implies that the imported pulp price leads the imported wood chip price. The impact response analysis revealed that the imported pulp price had a positive effect on the imported pulp and wood chip prices for up to 4 months, and the impact converges back to zero after 4 months. The impact of the price of imported wood chip had lasting effects on the price of imported wood chips for up to 4 months, then gradually decreased. According to the forecast error variance decomposition, the variation in the price of imported wood chip was mainly from shocks to the price of imported wood chip itself. The total variance of forecast error in imported pulp price decreased from 96.1% in 1 month to 63.7% in 12 months, and the price of imported wood chips increased from 3.9% in 1 month to 36.3% in 12 months.