Download or read book Revisiting the Competitive Storage Model as a Tool for the Empirical Analysis of Commodity Price Volatility written by Nicolas Legrand and published by . This book was released on 2016* with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Reviving the Competitive Storage Model written by Yanliang Miao and published by International Monetary Fund. This book was released on 2011-03-01 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book The Empirical Relevance of the Competitive Storage Model written by Carlo Cafiero and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Download or read book The Empirical Merit of Structural Explanations of Commodity Price Volatility written by Nicolas Legrand and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Essays On The Competitive Commodity Storage Model written by Ernesto Alex Guerra and published by . This book was released on 2018 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Estimation of the Commodity Storage Model written by Carlo Cafiero and published by . This book was released on 2002 with total page 280 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Estimating the Competitive Storage Model with Trending Commodity Prices written by Christophe Gouel and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Storage and Commodity Markets written by Jeffrey C. Williams and published by Cambridge University Press. This book was released on 1991-03-29 with total page 522 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book deals with the capability to store surplus commodities and the impact of stockpiles on prices and production.

Download or read book Commodity Price Movements in a General Equilibrium Model of Storage written by David M. Arseneau and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Bubble Troubles written by Eugenio S. A. Bobenreith and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Competitive Storage and Commodity Price Dynamics written by Angus Deaton and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: By buying cheap and selling dear, risk-neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand. Commodity prices are variable and strongly positively correlated from one year to the next. The variability is often explained by supply factors, and the autocorrelation by the activities of speculators. We show that this explanation is not consistent with the evidence. Speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence, but not to the high levels that are observed in the data.

Download or read book Food Price Volatility and Its Implications for Food Security and Policy written by Matthias Kalkuhl and published by Springer. This book was released on 2016-04-12 with total page 620 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides fresh insights into concepts, methods and new research findings on the causes of excessive food price volatility. It also discusses the implications for food security and policy responses to mitigate excessive volatility. The approaches applied by the contributors range from on-the-ground surveys, to panel econometrics and innovative high-frequency time series analysis as well as computational economics methods. It offers policy analysts and decision-makers guidance on dealing with extreme volatility.

Download or read book Commodity Price Dynamics written by Jiachuan Tian and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The variation of energy prices has been a traditional source of shocks to the real economy. In many cases, this variation has manifested in jumps in energy prices that were characterized by some persistence. From another perspective, energy price volatility has historically been noted and its effects on real economy debated. Historically, the importance of the shocks to the real economy has led them to be labeled as energy crises, as they were argued to have resulted in substantial changes in real prices that induced changes in behavior on the demand and supply sides of the many markets. The first chapter re-examines evidence of such a linkage by considering the transmission of energy prices into soft commodity prices. This nexus lies within the core of any real effects as softs include food-related commodities. The paper contributes to the literature by re-examining this linkage with a close eye on the role played by structural breaks within a time series and by considering the question of causality within a nonlinear framework. We find that functional form is a critical specification that conditions inference. Using linear forms, we find no cointegration between energy and food in the full sample under the maintained hypothesis that there are no structural breaks. Using linear nonparametric methods, we examine the series for structural breaks and find evidence of their importance. Based on subdivisions of the sample period as suggested by the structural break examination, within the structural break intervals identified we find evidence of cointegration. We next reconsider the issue within the context of nonlinear functional forms posing the question of whether evidence of structural breaks based on linear methods follow from underlying nonlinearity. Our results confirm the importance of functional form specification and we find evidence of nonlinear causality between energy and soft commodity prices. Empirical studies of transmission of energy prices into the real economy have been challenged by a number of significant specification issues that have resulted in substantial variation in inference drawn from results. Among these issues is the question of completeness of model specification. Chapter 2 examines the question of whether such models need to incorporate macroeconomic indicators. Clearly, macroeconomic factors such as interest rates and exchange rates play a role in the determination of energy and commodity prices, however, considerable specification uncertainty characterizes the question of which macro metrics to incorporate. We examine this issue from the perspective of weak exogeneity and find evidence that the parameter estimates associated with time series models that exclude consideration of macro indicators are not compromised by their exclusion. We examine this issue using Italian, U.S. grain, and Brent crude oil prices. While structural break, threshold and asymmetric cointegration models can allow us to characterize the linear and nonlinear dynamics in price transmission in level,it is of equal interest to differentiate across the type of price change to consider what might be thought of as typical price changes versus extreme price changes associated with either temporary structural change or mean reverting change as in what we call price jumps. In particular, while a structural break is a permanent and long-run structural shift in DGM, a jump in a series represents a sudden temporary change in the pattern of the observations generated. Such change is temporary in a sense that its effect usually diminishes rather quickly (usually in relatively few periods). That means, intuitively, in relatively short time span after a jump, the price series will revert to its mean or its long-run smooth pattern which we call the trend of the series. In Chapter 3, we present a detailed discussion of the proper representation of such price jumps and show that there are price jumps in the real-world economic price series. The last chapter is concerned with the micro-structure specification to identify origins of price jumps that can not be generally characterized by the competitive market models. In particular we propose a rather general model of procurement process where imperfectly informed buyers search for and place bids to suppliers to fulfill procurement demand. We show that in this process, search cost, market structure and market condition are crucial factors in generating price jumps. Later in the simulation part we show that the model proposed in this paper can generate jumps that resemble those in the observed economic price series. We also integrate buyers risk aversion in market conditions (though they are risk neutral in payoffs) through their personal belief and search costs. We show that buyers risk aversion increases their sensitivity to market conditions,which exaggerates price movements with presence of supply shocks.

Download or read book The Volatility of the Relative Price of Commodities in Terms of Manufactures Across Exchange Regimes written by Hong Liang and published by . This book was released on 2006 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the relationship between the nominal exchange rate regime and the volatility of relative commodity prices. The analysis shows that the relationship depends upon both the market structure and the economic agent`s perception about future exchange rate movements. When the markets for manufactured goods are less competitive than the markets for primary commodities, the volatility of relative commodity prices rises when exchange rate uncertainty increases. If demand for manufactured goods is intertemporally dependent, even a small increase in exchange rate uncertainty can result in potentially large costs in terms of increased relative commodity price instability.

Download or read book Essays on Estimation of a Nonlinear Commodity Price Model Without a Closed form Solution written by Di Zeng and published by . This book was released on 2012 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Competitive Storage and Commodity Price Dynamics written by Angus Deaton and published by . This book was released on 1994 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Theory of Commodity Price Stabilization a Study in the Economics of Risk written by David M. G. Newbery and published by . This book was released on 1985 with total page 462 pages. Available in PDF, EPUB and Kindle. Book excerpt: