Estimating the Competitive Storage Model with Trending Commodity Prices

Christophe Gouel and Nicolas Legrand

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Abstract: We present a method to estimate jointly the parameters of a standard commodity storage model and the parameters characterizing the trend in commodity prices. This procedure allows the influence of a possible trend to be removed without restricting the model specification, and allows model and trend selection based on statistical criteria. The trend is modeled deterministically using linear or cubic spline functions of time. The results show that storage models with trend are always preferred to models without trend. They yield more plausible estimates of the structural parameters, with storage costs and demand elasticities that are more consistent with the literature. They imply occasional stockouts, whereas without trend the estimated models predict no stockouts over the sample period for most commodities. Moreover, accounting for a trend in the estimation implies price moments closer to those observed in commodity prices. Our results support the empirical relevance of the speculative storage model, and show that storage model estimations should not neglect the possibility of long-run price trends.

Keywords: Commodity prices; Non-linear dynamic models; Structural estimation; Trend; non linear model; storage; raw materials; prices; modèle non linéaire; stockage; matière première; prix (search for similar items in EconPapers)
Date: 2017
Note: View the original document on HAL open archive server: https://hal.science/hal-01584507v1
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Citations: View citations in EconPapers (17)

Published in Journal of Applied Econometrics, 2017, 32 (4), pp.744-763. ⟨10.1002/jae.2553⟩

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Related works:
Journal Article: Estimating the Competitive Storage Model with Trending Commodity Prices (2017)
Working Paper: Estimating the Competitive Storage Model with Trending Commodity Prices (2015)
Working Paper: Estimating the competitive storage model with trending commodity prices (2015)
Working Paper: Estimating the Competitive Storage Model with Trending Commodity Prices (2015)
Working Paper: Estimating the Competitive Storage Model with Trending Commodity Prices (2015)
Working Paper: Estimating the Competitive Storage Model with Trending Commodity Prices (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01584507

DOI: 10.1002/jae.2553

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