6.5: Random Component

Movements in the series that cannot be explained by the trend, seasonal, or cyclical components are considered to be random. Many exogenous factors can cause demand or supply to shift and the equilibrium price to change. In agriculture, these include weather, plant or animal diseases, political upheavals that affect trade, and a number of other shocks to demand or supply. A moving average as described above can help to remove random elements of the time series as well as seasonality. Large random shocks could also disrupt a cyclical pattern as described above. In empirical work randomness describes movements in a price series that cannot be explained with the model.

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