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On The Behavior of Commodity Prices

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  • Angus Deaton
  • Guy Laroque

Abstract

The classical theory of commodity price determination integrates myopic supply and demand on the one hand with competitive storage (speculation) under rational expectations on the other. Taking into account the fact that inventories mist; be non-negative, this paper derives from the theory testable implications on the behavior of prices, and makes a first attempt to confront these implications with the empirical evidence. The nonlinearities turn out to be a crucial ingredient in matching the stylized facts, particularity the asymmetries and the sharp upward flares that characterize many commodity prices. The model, simple as it is, goes a long way in reproducing the main features of the data for a range of commodities.

Suggested Citation

  • Angus Deaton & Guy Laroque, 1990. "On The Behavior of Commodity Prices," NBER Working Papers 3439, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3439
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