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Evaluating the Stability of Softwood Lumber Demand Elasticity by End-Use Sector: A Stochastic Parameter Approach

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Estimates of the elasticity of demand for softwood lumber are obtained from a production theoretic model disaggregated by major end-using sector. Model parameters are treated as stochastic and estimated using the Kalman filter algorithm. The analysis supports Spelter's (1985) earlier findings of a highly inelastic aggregate U.S. demand for softwood lumber and that this elasticity has declined over the period since 1950. The extent of the decline was found to be only some 25%, however, and to have occurred in a relatively uniform fashion. Lumber demand elasticities in specific end-use sectors varied widely. Significant declining elasticity trends were found only in residential upkeep and alteration and materials handling. These trends arise from both a declining share of lumber in the costs of wood-based inputs and declining elasticities of demand for the wood-based inputs themselves. At the aggregate level, the significant declining trend in elasticity derives both from changing consumption shares across end uses and from the combined movements of the component elasticity series. For Sci. 38(4):825-841.

Document Type: Journal Article

Affiliations: Economic Research Service/U.S.D.A., 1301 New York Avenue, Washington, DC 20001

Publication date: November 1, 1992

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