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A staggered pricing approach to modeling speculative storage: implications for commodity price dynamics

  • Assa, Hirbod

    ()

    (University of Liverpool)

  • Dabbous, Amal

    ()

    (Concordia University)

  • Gospodinov, Nikolay

    ()

    (Federal Reserve Bank of Atlanta)

This paper embeds a staggered price feature into the standard speculative storage model of Deaton and Laroque (1996). Intermediate goods inventory speculators are added as an additional source of intertemporal linkage, which helps us to replicate the stylized facts of the observed commodity price dynamics. Incorporating this type of friction into the model is motivated by its ability to increase price stickiness which, gives rise to a higher degree of persistence in the first two conditional moments of commodity prices. The structural parameters of our model are estimated by the simulated method of moments using actual prices for four agricultural commodities. Simulated data are then employed to assess the effects of our staggered price approach on the time series properties of commodity prices. Our results lend empirical support to the possibility of staggered prices.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2013-08.

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Length: 30 pages
Date of creation: 01 Sep 2013
Date of revision:
Handle: RePEc:fip:fedawp:2013-08
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  1. David M Arseneau & Sylvain Leduc, 2013. "Commodity Price Movements in a General Equilibrium Model of Storage," IMF Economic Review, Palgrave Macmillan, vol. 61(1), pages 199-224, April.
  2. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
  3. Beck, Stacie E, 1993. "A Rational Expectations Model of Time Varying Risk Premia in Commodities Futures Markets: Theory and Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 149-68, February.
  4. Evans, Lewis & Guthrie, Graeme, 2007. "Commodity Price Behavior With Storage Frictions," Working Paper Series 3966, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
  5. Cafiero, Carlo & Bobenrieth H., Eugenio S.A. & Bobenrieth H., Juan R.A. & Wright, Brian D., 2011. "The empirical relevance of the competitive storage model," Journal of Econometrics, Elsevier, vol. 162(1), pages 44-54, May.
  6. Michaelides, Alexander & Ng, Serena, 2000. "Estimating the rational expectations model of speculative storage: A Monte Carlo comparison of three simulation estimators," Journal of Econometrics, Elsevier, vol. 96(2), pages 231-266, June.
  7. Serena Ng & Francisco J. Ruge-Murcia, 2000. "Explaining the Persistence of Commodity Prices," Computational Economics, Society for Computational Economics, vol. 16(1/2), pages 149-171, October.
  8. repec:cup:cbooks:9780521326162 is not listed on IDEAS
  9. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September.
  10. Julio J. Rotemberg, 1994. "Prices, Output and Hours: An Empirical Analysis Based on a Sticky Price Model," NBER Working Papers 4948, National Bureau of Economic Research, Inc.
  11. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  12. Mitraille, S├ębastien & Thille, Henry, 2009. "Monopoly behaviour with speculative storage," Journal of Economic Dynamics and Control, Elsevier, vol. 33(7), pages 1451-1468, July.
  13. Norbert Funke & Weifeng Wu & Yanliang Miao, 2011. "Reviving the Competitive Storage Model; A Holistic Approach to Food Commodity Prices," IMF Working Papers 11/64, International Monetary Fund.
  14. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  15. Newbery, David M, 1984. "Commodity Price Stabilization in Imperfect or Cartelized Markets," Econometrica, Econometric Society, vol. 52(3), pages 563-78, May.
  16. Lee, Bong-Soo & Ingram, Beth Fisher, 1991. "Simulation estimation of time-series models," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 197-205, February.
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