Author: Christophe GouelPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Estimating the Competitive Storage Model with Trending Commodity Prices
Reviving the Competitive Storage Model
Author: Yanliang MiaoPublisher: International Monetary Fund
ISBN: 1455228060
Category : Business & Economics
Languages : en
Pages : 49
Book Description
We revive in this paper the empirical relevance of the competitive storage model by taking a holistic approach to food commodity prices. We augment the seminal Deaton and Laroque (1992, 1996) model by incorporating more comprehensive and realistic supply and demand factors: output and demand trends, shocks to the yield, and time-varying interest rates. While the computational burden increases exponentially, the augmented model succeeds in replicating all four key patterns of food commodity prices. Our simulation and comparative statics also show that (i) the long-run declining trend of food prices may come to a halt or even reverse due to the shifting balance between supply and demand; (ii) short-run price fluctuations are mainly attributable to sizeable, though low-probability, shocks to output such as inclement weather; and (iii) the impact of monetary policy, though small in normal times, is nonlinear and asymmetric, and can become large if the real rate passes a certain threshold.
Estimation of the Commodity Storage Model
Author: Carlo CafieroThe Empirical Relevance of the Competitive Storage Model
Author: Carlo CafieroPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Abstract: "The empirical relevance of models of competitive storage arbitrage in explaining commodity price behavior has been seriously challenged in a series of pathbreaking papers by Deaton and Laroque (1992, 1995, 1996). Here we address their major criticism, that the model is in general unable to explain the degree of serial correlation observed in prices of twelve major commodities. First, we present a simple numerical version of their model which, contrary to Deaton and Laroque (1992), can generate the high levels of serial correlation observed in commodity prices, if it is parameterized to generate realistic levels of price variation. Then, after estimating the Deaton and Laroque (1995, 1996) model using their data set, model specification and econometric approach, we show that use of a much finer grid to approximate the equilibrium price function yields quite different estimates for most commodities. Results are obtained for coffee, copper, jute, maize, palm oil, sugar and tin that s
Essays On The Competitive Commodity Storage Model
Author: Ernesto Alex GuerraPublisher:
ISBN:
Category :
Languages : en
Pages : 61
Book Description
This dissertation consists of three essays on the competitive commodity storage model. This model provides a basis for rationalizing many of the observed qualitative features of the behavior of prices of storable commodities. I attempt to make a contribution to this model in three dimensions: empirical (chapter 1), numerical (chapter 2), and theoretical (chapter 3). In the first chapter, I analyze the ability of the standard commodity storage model to replicate serial correlation in annual prices. Calendar year averages of prices induce spurious smoothing of price spikes, a fact that has been surprisingly overlooked in several empirical studies of the annual commodity storage model for agricultural commodities. I present an application of a maximum likelihood estimator of the storage model for maize prices, correcting for the spurious smoothing. My results, using this data set, imply serious differences in magnitudes of interest. These differences include the location and skewness of the empirical distribution of prices relative to the cutoff price of zero stocks, the likelihood of stockouts, and the fit to data on stocks-to-use ratios. In the second chapter, I propose an alternative numerical strategy for solving nonlinear rational expectation models with inequality constraints. It addresses three problems observed in the standard solution method: lack of robustness to scaling transformation of the stationary rational expectation function, errors of approximation due to extrapolation within the ergodic set, and interpolation around the kink implied by the inequality constraint. In comparison with the standard solution method, my findings suggest that the numerical strategy I propose is robust to scaling transformation, removes the approximation errors due to extrapolation, and avoids interpolation above the kink. Finally in the third chapter, I present a critique of a theoretical version of the competitive commodity storage model that assumes a support for the speculative storage that is bounded from below at zero, and above at a exogenous predetermined maximum capacity. By proposing a counter-example, I show that the fixed point iteration operator proposed by Oglend and Kleppe (2017) to solve this version of the model does not converge in general, as they claim.
Maximum Likelihood Estimation of the Standard Commodity Storage Model
Author: Carlo CafieroPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We present a Maximum Likelihood estimator for the standard commodity storage model with stockouts, based on prices only. While it imposes no additional assumptions on the model, the Maximum Likelihood estimator has small sample properties superior to those of the Pseudo Maximum Likelihood approach. We provide a proof that is crucial for applying our estimator to the model with normal harvests and possibly unbounded prices, thereby eliminating an inconsistency in the empirical storage model literature. Applying our Maximum Likelihood estimator to a series of annual sugar prices from 1921 to 2009 provides new evidence for the empirical relevance of the standard storage model. Our results imply a cutoff price at which discretionary stocks go to zero, which is higher than the price obtained by applying the Pseudo Maximum Likelihood estimator to the same data. The implied frequency of stockouts is lower, and price correlations, skewness, and kurtosis implied by the model closely match those seen in the annual sugar price data. We find the price of sugar to be highly responsive to small changes in consumption. When inventories are not available to buffer the effects of negative supply shocks on consumption, prices must increase sharply to induce the consumption changes needed to clear the market. Our results show why production shocks are not necessarily aligned with price spikes; the same production shock can give rise to very different price responses, depending on whether or not there are sufficient stocks to buffer its impact.
Commodity Price Dynamics
Author: Craig PirrongPublisher: Cambridge University Press
ISBN: 1139501976
Category : Business & Economics
Languages : en
Pages : 238
Book Description
Commodities have become an important component of many investors' portfolios and the focus of much political controversy over the past decade. This book utilizes structural models to provide a better understanding of how commodities' prices behave and what drives them. It exploits differences across commodities and examines a variety of predictions of the models to identify where they work and where they fail. The findings of the analysis are useful to scholars, traders and policy makers who want to better understand often puzzling - and extreme - movements in the prices of commodities from aluminium to oil to soybeans to zinc.
Revisiting the Competitive Storage Model as a Tool for the Empirical Analysis of Commodity Price Volatility
Author: Nicolas LegrandStorage and Commodity Markets
Author: Jeffrey C. WilliamsPublisher: Cambridge University Press
ISBN: 0521326168
Category : Business & Economics
Languages : en
Pages : 522
Book Description
This book deals with the capability to store surplus commodities and the impact of stockpiles on prices and production.
Essays on Estimation of a Nonlinear Commodity Price Model Without a Closed-form Solution
Author: Di ZengPublisher:
ISBN:
Category :
Languages : en
Pages : 208
Book Description
This thesis is about estimation of classic and modified versions of the rational expectations competitive storage model in the tradition of Gustafson (1958) (the storage model for short), an important economic theory of price determination of storable primary commodities. The first chapter proposes and evaluates a procedure for approximating the optimal instruments under the context of the classic storage model. This procedure involves calibrating the unknown, true conditional variance function of price disturbance in the optimal instrument using the counterpart of an auxiliary storage model. Monte Carlo simulation suggests that this procedure brings small-sample efficiency gain relative to the benchmark Generalized Method of Moments (GMM) estimator of Deaton and Laroque (1992) and a few other alternatives at the sample size of 100. Its performance is also robust to parameterizations of the auxiliary model within moderate range from the true. This chapter also studies the estimators that require no preliminary estimation, which provide preliminary estimates for the proposed and other infeasible estimators. I find that a well-performing preliminary estimator does not contain instruments of lagged-more-than-one price or increasing transformations of lag prices, and does not use estimated optimal weighting matrix or adopt the continuous-updating approach of Hansen, Heaton and Yaron (1996). Therefore, an instrument of a constant plus reciprocal of lag one price and an identity weighting matrix in general form a good preliminary estimator. Chapter 2 addresses two concerns about the usefulness of the theory of storage. While commodity speculators can induce serial dependence in price, Deaton and Laroque (1992, 1995 and 1996) argue that speculation explains only a small fraction of the observed autocorrelation in the actual data. Furthermore, the expected rate of return on storage implied by previous econometric estimates is implausibly small. This chapter addresses these two concerns about the validity of the theory of speculative storage by recognizing the downward trend in real price. The existence of a unique non-stationary equilibrium is proved for a rational-expectations competitive-storage model with a trend, and testable implications of the model are also derived. I show that, when a downward price trend in part or all of the sample is ignored, the autocorrelation coefficient in price tends to be overestimated while the expected rate of return tends to be underestimated. Finally, I offer an empirical illustration of the trending storage model using annual corn price over the period from 1961 to 2005. Chapter 3 discusses the empirical implications of the distributional misspecification of two nonlinear least squares estimators of a modified storage model with unbounded prices. The existence of infrequent, extremely low harvest generates extremely high cutoff price which is difficult to pass in finite periods. Meanwhile, due to the tiny chance of such events, it is easy for the practitioners to ignore them during the estimation and apply a false storage model with relatively low cutoff price. This chapter studies how such misspecification can affect the empirical implications of estimating the storage model. Surprisingly, I find that misspecified econometric models yield better estimates for the real interest rate; and the estimated cutoff price, actually captures the sharp turning point of the equilibrium price function. Therefore, though misspecified, the estimates are practically useful. Nevertheless, it is also emphasized that such interesting property of the two estimators should by no means be understood as a defense of ignoring the infrequent influential event in the asset pricing problems. Mathematical proofs for general results and further discussions of a few econometric issues can be found in the Appendices. While a few theoretical results have been derived, this thesis relies heavily on Monte Carlo simulation and numerical functional approximation. Numerical methods turn out to be a convenient and many times necessary tools to study small-sample econometric problems when asymptotic results cannot provide an accurate approximation to the exact sampling.