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The empirical relevance of the competitive storage model

[journal article]

Cafiero, Carlo; Bobenrieth H., Eugenio S.A.; Bobenrieth H., Juan R.A.; Wright, Brian D.

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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-268422

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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 support the specifications of the storage model with positive constant marginal storage cost and no deterioration as in Gustafson (1958a). Consumption demand has low response to price and, except for sugar, there are infrequent stockouts. Observed magnitudes of serial correlation of price match those implied by the estimated model." [author's abstract]
Keywords simulation
Classification Methods and Techniques of Data Collection and Data Analysis, Statistical Methods, Computer Methods
Free Keywords Autocorrelation; Commodity Prices; Pseudo Maximum Likelihood; Storage;
Document language English
Publication Year 2009
Page/Pages p. 44-54
Journal Journal of Econometrics, 162 (2009) 1
DOI http://dx.doi.org/10.1016/j.jeconom.2009.10.008
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)