Author: Nicolas LegrandPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Revisiting the Competitive Storage Model as a Tool for the Empirical Analysis of Commodity Price Volatility
Author: Nicolas LegrandReviving 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.
The 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
The Empirical Merit of Structural Explanations of Commodity Price Volatility
Author: Nicolas LegrandPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
This paper presents both the history of and state-of-the-art in empirical modeling approaches to the world commodity price volatility. The analysis builds on the storage model and key milestones in its development. Specifically, it is intended to offer a reader unfamiliar with the relevant literature an insight into the modeling issues at stake from both a historical and speculative viewpoint. The review considers primarily the empirical techniques designed to assess the merits of the storage theory; it does not address purely statistical approaches that do not rely on storage theory and that have been studied in depth in other streams of the commodity price literature. The paper concludes with some suggestions for future research to try to resolve some of the existing empirical flaws, and hopefully to increase the explanatory power of the storage model.
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.
Estimation of the Commodity Storage Model
Author: Carlo CafieroEstimating the Competitive Storage Model with Trending Commodity Prices
Author: Christophe GouelStorage 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.
Commodity Price Movements in a General Equilibrium Model of Storage
Author: David M. ArseneauPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We embed the canonical rational expectations competitive storage model into a general equilibrium framework thereby allowing the non-linear commodity price dynamics implied by the competitive storage model to interact with the broader macroeconomy. Our main result is that the endogenous movement in interest rates implied under general equilibrium enhances the effects of competitive storage on commodity prices. Compared to a model in which the real interest rate is fixed, we find that storage in general equilibrium leads to more persistence in commodity prices and somewhat lower volatility. Moreover, the frequency of stockouts is lower in general equilibrium. A key mechanism driving this result is a link between the ability of the household to smooth consumption over time and the level of storage in the stochasic equilibrium. Finally, the model is used to examine the macroeconomic effects of both biofuel subsidies for ethanol producers and, separately, subsidies designed to insulate households from high food prices.
Bubble Troubles?
Author: Eugenio S. A. BobenreithPublisher:
ISBN:
Category : Economics
Languages : en
Pages :
Book Description
High and volatile prices of major commodities have generated a wide array of analyses and policy prescriptions, including influential studies identifying price bubbles in periods of high volatility. Here we consider a model of the market for a storable commodity in which price expectations are unbounded. We derive its implications for price time series and empirical tests of price behavior. In this model commodity price is equal to marginal consumption value, and hence bubbles as defined in financial economics cannot occur. However the model generates episodes of price runs that could be characterized as "explosive" and might seem to be bubble-like. At sufficiently long holding periods, a price path can yield average returns consistent with mean reversion, even though the long run expectation of price is infinite.