Spatial Price Linkage between Forest Products Markets in the South and the Pacific

The American lumber market has gone through various demand and supply shocks for 40 years, and has been particularly shaped by harvesting restrictions in the Pacific Northwest. Linkage of lumber markets has considerably changed since then, with the most observable alteration in price fluctuation. In this study, the degree of spatial price linkage between the South and Pacific Northwest markets was examined using the threshold vector error correction model and smooth transaction autoregressive model. Estimated results revealed that the two markets are cointegrated, but the degree and direction of spatial price transmission varied by product. Some lumber products made of southern pine gained market leadership over similar products from the Northwest. However, fir products were still influential when higher requirements were set on the products. Results of the smooth transaction autoregressive model showed that when one dimension product is concerned, pine product could maintain relatively higher price for a longer period, but it was not the case for the other two products. As supply and demand of lumber products are affected by various factors, such as environmental protection, housing starts, and also have effect on welfare distribution of market participants, these results provide guidance to understand the dynamics of lumber markets in the United States.