Abstract
Cyclical exposures of farm profit to the economic environment are a fact of life for farmers. By utilising the farmer terms of trade as a net profit margin metric, we show how wavelet analysis can be used to decompose the cycle and trend, analyse causal influences, and detect structural breaks. With the NZ dairy industry as case study, the wavelet decomposition reveals that shorter cycles are almost wholly the result of commodity prices. Longer cycles are produced by the interaction of commodity prices with the exchange rate, but with a strong natural buffering element. The buffer was upset following the Asian crisis of 1997–1998, but may have restored itself since. A favourable long-term trend has appeared from the mid nineties onwards. Implications for risk management are briefly examined.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Bai J, Perron P (2003) Computation and analysis of multiple structural change models. J Appl Econom 18(1):1–22
Bowden RJ (2004) McHouse prices, capital hoovering, and real exchange rate exposures. N Z Econ Pap 38:119–139
Bowden RJ (2005) Macroeconomics and financial management. Kiwicap Education, Wellington
Bowden RJ, Zhu J (2006) Asymmetric hedging of the corporate terms of trade. J Futures Markets 26:1059–1088
Bowden RJ, Zhu J, Cho JS (2006) Knowing a bit but not too much: incomplete directional models and their use in forecasting and hedging. School of Economics and Finance, Victoria University of Wellington, http://www.sef.vuw.ac.nz/
Christiano LJ, Fitzgerald TJ (2003) Inflation and monetary policy in the twentieth century. Federal Reserve Bank of Chicago, Economic Perspectives, QI:22–45
Coifman RY, Meyer SQ, Wickerhauser V (1990) Signal processing and compression with wave packets. Numerical Algorithms Research Group Yale University, New Haven
Cohen A, Daubechies I, Feauveau JC (1992) Biorthogonal basis of compactly supported wavelets. Commun Pure Appl Math 45:485–560
Crowley P (2005) An intuitive guide to wavelets. Bank of Finland/College of Business Texas A & M University
Daubechies I (1988) Orthonormal bases of compactly supported wavelets. Commun Pure Appl Math 41:909–996
Daubechies I (1990) The wavelet transform, time-frequency localization and signal analysis. IEEE Trans Inform Theory 36:961–1005
Daubechies I (1992) Ten lectures on wavelets. Society for Industrial and Applied Mathematics. Capital City Press, Montpelier
Dexcel Inc. (2004) Economic survey of New Zealand dairy farmers 2002–3. Hamilton, New Zealand
Mallat S (1989) A theory for multiresolution signal decomposition: the wavelet representation. IEEE Trans Pattern Anal Mach Intell 11:674–693
Misiti M, Misiti Y, Oppenheim G, Poggi JM (2005) Matlab wavelet toolbox user’s guide, http://www.mathworks.com
Percival DB, Walden AT (2000) Wavelet methods for time series analysis. Cambridge University Press, New York
Prebisch R (1960) The economic development of Latin America and its principal problem. UN, ECLA, New York
Priestley MB (1965) Evolutionary spectra and non- stationary processes. J Roy Stat Soc B 27:204–237
Raihan SM, Wen Y, Zeng B (2005) Wavelets: a new tool for business cycle analysis. Federal Reserve Bank of ST. Louis Working Paper 2005–050A
Ramsey J (1999) The contribution of wavelets to the analysis of economic and financial data. Philos Trans Math Phys Eng Sci 357:2593–2606
Schleicher C (2002) An introduction to wavelets for economists. Bank of Canada Working Paper 2002–2003
Singer HW (1950) The distribution of gains between the investing and developing countries. Am Econ Rev XL:473–485
Zhu J (2006) The Structured hedging of financial value: with applications to foreign exchange risk management. PhD thesis, Victoria University of Wellington
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Bowden, R., Zhu, J. The agribusiness cycle and its wavelets. Empirical Economics 34, 603–622 (2008). https://doi.org/10.1007/s00181-007-0140-7
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00181-007-0140-7