Application of simultaneous equations model to estimate particleboard demand and supply

Abstract

Dynamic supply and demand equations for particleboard using a threestage squares simulation (3SLS) were estimated. Empirical data included annual observations over the period of 1976 to 2006. The stationary character of the data was checked by applying the Augmented Dickey-Fuller (ADF) Test. The results revealed that in the demand function, variables such as particleboard price, the gross national product (GNP) in the previous year (lagged quantity), and the MDF price were significant at 0.05%. In the supply function, variables such as the price of medium density fiberboard (MDF), demand for particleboard in the previous year, the product/raw material price ratio in the previous year, and particleboard imports in the previous year were shown to be significant at 0.05%. Also price, income, and cross elasticities of demand for particleboard were calculated as -0.65, 0.32, and 1.63, respectively, indicating that this commodity is a necessary and normal good and MDF is a substitute for it.