Modelling Market Fundamentals: A Model of the Aluminium Market

Christopher L Gilbert

CEPR Financial Markets Paper from European Science Foundation Network in Financial Markets, c/o C.E.P.R, 33 Great Sutton Street, London EC1V 0DX.

Abstract: The standard approach to modelling primary commodity markets under rational expectations is to relate the commodity price to the production and consumption `surprises' (i.e. the innovations on the equations). Using the world aluminium market, I show how this approach can be modified so that both the price and stock can be written in terms of one or more market `fundamentals' which reflect the supply-demand balance on the market. This approach allows joint estimation of production, consumption, stock demand and price equations subject to cross equation restrictions. It may be seen as a formalization of the approach adopted by metals industry analysts.

Keywords: Aluminium; Commodity Prices; Fundamentals; Metals; Monitoring; Exclusivity (search for similar items in EconPapers)
Date: 1993-02
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