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“The empirical relevance of the competitive storage model” by Cafiero et al. (2011): Replication, robustness, and extension

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  • Nicolas Legrand

    (SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement)

Abstract

Most of the empirical work and policy analysis in commodity markets rely on the storage model with rational expectations. However, its empirical validity remains challenged. Cafiero et al. (2011) inject new life into the commodity price literature by addressing the major empirical concern, which is the model's inability to explain the observed patterns of autocorrelation in prices. This article aims to reproduce the main estimation results of the structural parameters of the storage model obtained by Cafiero et al. (2011) and then to extend the analysis with a series of robustness checks of the original findings. The successful replication exercise supports the validity of the published results. Regarding the robustness analysis, I find that the results are particularly sensitive to the efficiency of the estimator used and the spurious averaging effect resulting from the construction of annual data series. Future structural estimations of the storage model should account for both factors for more reliable estimates to be obtained.

Suggested Citation

  • Nicolas Legrand, 2023. "“The empirical relevance of the competitive storage model” by Cafiero et al. (2011): Replication, robustness, and extension," Post-Print hal-03809789, HAL.
    • Handle: RePEc:hal:journl:hal-03809789
    DOI: 10.1002/aepp.13282
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    References listed on IDEAS

    as
    1. Carlo Cafiero & Eugenio S.A. Bobenrieth H. & Juan R.A. Bobenrieth H. & Brian D. Wright, 2015. "Maximum Likelihood Estimation of the Standard Commodity Storage Model: Evidence from Sugar Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 122-136.
    2. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399.
    3. Nicolas Legrand, 2019. "The Empirical Merit Of Structural Explanations Of Commodity Price Volatility: Review And Perspectives," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 639-664, April.
    4. Obie Porteous, 2019. "High Trade Costs and Their Consequences: An Estimated Dynamic Model of African Agricultural Storage and Trade," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 327-366, October.
    5. 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.
    6. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
    7. Christophe Gouel & Nicolas Legrand, 2017. "Estimating the Competitive Storage Model with Trending Commodity Prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(4), pages 744-763, June.
    8. Mario J. Miranda & Paul L. Fackler, 2004. "Applied Computational Economics and Finance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633094, December.
    9. Eugenio S.A. Bobenrieth & Juan R.A. Bobenrieth & Ernesto A. Guerra & Brian D. Wright & Di Zeng, 2021. "Putting the Empirical Commodity Storage Model Back on Track: Crucial Implications of a “Negligible” Trend," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(3), pages 1034-1057, May.
    10. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
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