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Bayesian Estimation of the Storage Model using Information on Quantities

Listed author(s):
  • Gouel, Christophe
  • Legrand, Nicolas

This paper presents a new strategy to estimate the rational expectations storage model. It uses information on prices and quantities – consumption and production – in contrast to previous approaches which use only prices. This additional information allows us to estimate a model with elastic supply, and to identify parameters such as supply and demand elasticities, which are left unidentified when using prices alone. The estimation relies on the Bayesian methods popularized in the literature on the estimation of DSGE models. It is carried out on a market representing the caloric aggregate of the four basic staples – maize, rice, soybeans, and wheat – from 1961 to 2006. The results show that to be consistent with the observed volatility of consumption, production, and price, elasticities have to be in the lower ranges of the elasticities in the literature, a result consistent with recent instrumental variable estimations on the same sample.

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File URL: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2017/wp_tse_776.pdf
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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 17-776.

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Date of creation: Mar 2017
Handle: RePEc:tse:wpaper:31555
Contact details of provider: Phone: (+33) 5 61 12 86 23
Web page: http://www.tse-fr.eu/

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  1. Lucille Williamson & Paul Williamson, 1942. "What We Eat," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(3), pages 698-703.
  2. Robert J. Barro & Xavier Sala-i-Martin, 1990. "World Real Interest Rates," NBER Chapters,in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74 National Bureau of Economic Research, Inc.
  3. 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.
  4. V. Ernesto Alex Guerra & Eugenio Sebastián Antonio Bobenrieth H. & Juan Rodrigo Andrés Bobenrieth H. & Carlo Cafiero, 2015. "Editor's choice Empirical commodity storage model: the challenge of matching data and theory," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 42(4), pages 607-623.
  5. Wright, Brian D & Williams, Jeffrey C, 1982. "The Economic Role of Commodity Storage," Economic Journal, Royal Economic Society, vol. 92(367), pages 596-614, September.
  6. Dvir, Eyal & Rogoff, Kenneth, 2014. "Demand effects and speculation in oil markets: Theory and evidence," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 113-128.
  7. 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.
  8. Christophe Gouel, 2013. "Comparing Numerical Methods for Solving the Competitive Storage Model," Computational Economics, Springer;Society for Computational Economics, vol. 41(2), pages 267-295, February.
  9. Angus Deaton & Guy Laroque, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 1-23.
  10. Carroll, Christopher D., 2006. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," Economics Letters, Elsevier, vol. 91(3), pages 312-320, June.
  11. Michael K. Adjemian & Aaron Smith, 2012. "Using USDA Forecasts to Estimate the Price Flexibility of Demand for Agricultural Commodities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(4), pages 978-995.
  12. Christophe Gouel & Nicolas Legrand, 2015. "Estimating the competitive storage model with trending commodity prices," Working Papers 1513, Chaire Economie du climat.
  13. Michael J. Roberts & Wolfram Schlenker, 2013. "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate," American Economic Review, American Economic Association, vol. 103(6), pages 2265-2295, October.
  14. Brian Wright, 2014. "Global Biofuels: Key to the Puzzle of Grain Market Behavior," Journal of Economic Perspectives, American Economic Association, vol. 28(1), pages 73-98, Winter.
  15. 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.
  16. Gustafson, Robert L., 1958. "Carryover levels for grains: A method for determining amounts that are optimal under specified conditions," Technical Bulletins 157231, United States Department of Agriculture, Economic Research Service.
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