Analysis of lumber and pulpwood production in a partial adjustment model with dynamic and variable speeds of adjustment

This article proposes a partial adjustment model in which the speed of adjustment is a linear function of policy and economic variables rather than fixed. The model is applied to analyze the behavior of lumber and pulpwood production. Since the model is overparameterized and intrinsically nonlinear, the task of estimation is done by the nonlinear least squares method, using quarterly data covering the period from 1961 through 1983. Both the adjustment speeds of lumber and pulpwood production are found to vary inversely with the discrepancy between the actual and the expected interest rate. The adjustment speed of lumber production is also found to shift positively with the difference between the actual and the expected government expenditure. In addition, the results show that the adjustment speed of lumber production suffers from a longterm declining trend, whereas the adjustment speed of pulpwood production exhibits a long-term upward sweep, and that desired outputs of lumber and pulpwood respond negatively to expected prices and interest rates but positively to general economic conditions as measured by gross national product. These findings have important policy implications. The model with a constant speed of adjustment suggested by Lin (1979) appears to be unable to afford an adequate explanation of the dynamic behavior of lumber and pulpwood production.