Reviving the Competitive Storage Model
AbstractWe 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.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 11/64.
Date of creation: 01 Mar 2011
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This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-04-02 (Agricultural Economics)
- NEP-ALL-2011-04-02 (All new papers)
- NEP-CMP-2011-04-02 (Computational Economics)
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"A Model of Commodity Prices after Sir Arthur Lewis,"
Working Papers, Centre de Recherche en Economie et Statistique
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- Pfuderer, Simone, 2014. "Are stockholders rational? An experimental approach to testing the competitive storage model," 88th Annual Conference, April 9-11, 2014, AgroParisTech, Paris, France, Agricultural Economics Society 170537, Agricultural Economics Society.
- Assa, Hirbod & Dabbous, Amal & Gospodinov, Nikolay, 2013. "A staggered pricing approach to modeling speculative storage: implications for commodity price dynamics," Working Paper, Federal Reserve Bank of Atlanta 2013-08, Federal Reserve Bank of Atlanta.
- David M. Arseneau & Sylvain Leduc, 2012.
"Commodity price movements in a general equilibrium model of storage,"
International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.)
1054, Board of Governors of the Federal Reserve System (U.S.).
- David M Arseneau & Sylvain Leduc, 2013. "Commodity Price Movements in a General Equilibrium Model of Storage," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 61(1), pages 199-224, April.
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