Commodity price movements in a general equilibrium model of storage
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.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Williams,Jeffrey C. & Wright,Brian D., 1991.
"Storage and Commodity Markets,"
Cambridge University Press, number 9780521326162, 1.
- Leduc, Sylvain & Sill, Keith, 2004.
"A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns,"
Journal of Monetary Economics,
Elsevier, vol. 51(4), pages 781-808, May.
- Sylvain Leduc & Keith Sill, 2001. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Working Papers 01-9, Federal Reserve Bank of Philadelphia.
- Julia K. Thomas, .
"Is Lumpy Investment Relevant for the Business Cycle?,"
GSIA Working Papers
1998-E250, Carnegie Mellon University, Tepper School of Business.
- Julia K. Thomas, 2002. "Is Lumpy Investment Relevant for the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 508-534, June.
- Julia K. Thomas, 2002. "Is lumpy investment relevant for the business cycle?," Staff Report 302, Federal Reserve Bank of Minneapolis.
- NG, Serena & RUGE-MURCIA, Francisco J., 1997.
"Explaining the Persistence of Commodity Prices,"
Cahiers de recherche
9709, Universite de Montreal, Departement de sciences economiques.
- 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.
- Luca Guerrieri & Martin Bodenstein, 2012.
"Oil Efficiency, Demand, and Prices: a Tale of Ups and Downs,"
2012 Meeting Papers
25, Society for Economic Dynamics.
- Martin Bodenstein & Luca Guerrieri, 2011. "Oil efficiency, demand, and prices: a tale of ups and downs," International Finance Discussion Papers 1031, Board of Governors of the Federal Reserve System (U.S.).
- Bruce A. Babcock, 2011.
"The Impact of Ethanol and Ethanol Subsidies on Corn Prices: Revisiting History,"
Center for Agricultural and Rural Development (CARD) Publications
11-pb5, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- Bruce A. Babcock, 2011. "The Impact of Ethanol and Ethanol Subsidies on Corn Prices: Revisiting History," Food and Agricultural Policy Research Institute (FAPRI) Publications 11-pb5, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
- 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.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:1054. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marlene Vikor)
If references are entirely missing, you can add them using this form.