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A Short-Run ARDL-Bounds Model for Forecasting and Simulating the Price of Lobster

Since the early 1990s collapse of the groundfish fishery in Canada, crustaceans (particularly lobster) have developed into important fisheries. Prices play an important role in setting income and welfare levels of fishermen, creating policy interest in good forecasts of the ex-vessel price of lobster. In this article, Pesaran’s autoregressive distributed lag/error-correction Bounds model estimates a short-run inverse demand curve for Canadian lobster. The advantage of the Pesaran model is that it is valid regardless of the stationary/probability properties of the variables in question (i.e., ~I(1), ~I(0), or fractionally integrated) and allows the short-run model to encompass long-run equilibrium constraints. The data represents monthly observations for the period 1990(1)–2016(12). The estimated model is tested and validated, and dynamic forecasts capture well turning points in the data. Monthly price forecasts for the period 2017–18 are generated under a number of alternative price policy scenarios.