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GTAP Resource #3599

"Can Storage Arbitrage Explain Commodity Price Dynamics?"
by Cafiero, Carlo, Eugenio S. A. Bobenrieth H., Juan R. A. Bobenrieth H and Brian Wright

The nature of commodity price behavior remains in substantial dispute. Previous empirical tests of the standard storage model have concluded that storage arbitrage cannot explain the high serial correlation of prices. We introduce a Maximum Likelihood estimator that, unlike available approaches, makes full use of the predictions of the model about the most striking feature of commodity prices, the skewness revealed in their asymmetric dynamics, displaying occasional spikes. Our results for sugar establish the empirical relevance of storage in determining its price behavior. The dynamics of commodity prices can be quite different from those of the shocks that drive them.

Subject headings: Commodity Price Dynamics, Storage, Speculation, Sugar, Maximum Likelihood Estimation, Non-linear Dynamic Models.

Resource Details (Export Citation) GTAP Keywords
Category: 2011 Conference Paper
Status: Published
By/In: Presented at the 14th Annual Conference on Global Economic Analysis, Venice, Italy
Date: 2011
Created: Wright, B. (4/15/2011)
Updated: Wright, B. (4/15/2011)
Visits: 2,257
- Dynamic modeling

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