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Author: Carlo Cafiero Publisher: 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.
Author: Carlo Cafiero Publisher: 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.
Author: Ernesto Alex Guerra Publisher: 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.
Author: Yanliang Miao Publisher: 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.
Author: Shailesh Shrestha Publisher: CABI ISBN: 1780644280 Category : Science Languages : en Pages : 240
Book Description
Agriculture is the product of a complex mixture of behavioural, biophysical and market drivers. Understanding how these factors interact to produce crops and livestock for food has been the focus of economic investigation for many years. The advent of optimisation algorithms and the exponential growth in computing technology has allowed significant growth in mathematical modelling of the dynamics of agricultural systems. The complexity of approaches has grown in parallel with the availability of data at increasingly finer resolutions. Farm-level models have been widely used in agricultural economic studies to understand how farmers and land owners respond to market and policy levers. This book provides an in-depth description of different methodologies and techniques currently used in farm-level modelling. While giving an overview of the theoretical grounding behind the models, an applied approach is also used. Case studies range from the application of modelling to policy reforms and the subsequent impacts on rural communities and food supply. This book also provides descriptions of the use of farm-level models in much wider fields such as aggregation and linking with sectoral models. Its purpose is to show the reader the methods that have been employed to inform decision-makers about how to improve the economic, social and environmental goals required to achieve the aims of multidimensional policy.
Author: Jaime Casassus Publisher: ISBN: Category : Languages : en Pages : 36
Book Description
We develop a three-factor Gaussian model of commodity spot prices, convenience yields and interest rates, which extends previous research (e.g., Brennan (1991), Gibson and Schwartz (1990), Schwartz (1997), Ross (1997), Schwartz and Smith (2000)) in two ways. First, the model is maximal, and thus nests all previously proposed specifications. Second, we allow for time-varying risk-premia. We show that previous models have implicitly imposed unnecessary restrictions on the unconditional correlation structure of commodity prices, convenience yields and interest rates. Using data on copper, crude oil, silver and gold commodity futures, we empirically estimate the model using maximum likelihood. We find both features of the model to be economically and empirically significant. In particular, we find strong evidence for spot-price level dependence in convenience yields, which implies mean-reversion in spot prices under the risk-neutral measure, and is consistent with the quot;theory of storage.quot; We also find evidence for time-varying risk-premia, which implies mean-reversion of commodity prices under the physical measure albeit with different strength and long-term mean. The model thus disentangles the different sources of mean-reversion in spot commodity prices. The results suggest that the relative contribution of both effects (level dependent convenience yield vs. time-varying risk-premia) to mean reversion depends on the nature of the commodity. We find that for metals like gold and silver, negative correlation between risk-premia and spot prices explains most of the mean reversion, whereas for oil almost all of the mean-reversion in spot prices is attributable to convenience yields.
Author: Craig Pirrong Publisher: 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.
Author: Carlo Cafiero
Author: Carlo Cafiero
Author: Ernesto Alex Guerra
Author: Carlo Cafiero
Author: Yanliang Miao
Author: Jeffrey C. Williams
Author: Shailesh Shrestha
Author: Eugenio Sebastian Bobenrieth
Author: Michael J. Brennan
Author: Jaime Casassus
Author: Craig Pirrong