A Simple Model of Endogenous Agricultural Commodity Price Fluctuations with Storage

Fordham University Department of Economics Discussion Paper No. 2011-05

46 Pages Posted: 11 Aug 2011

See all articles by Sophie Mitra

Sophie Mitra

Fordham University

Jean-Marc Boussard

French National Institute for Agricultural Research (INRA)

Date Written: June 2011

Abstract

A debate has been raging for centuries regarding the effects of inter-annual storage on commodity prices. Most analysts consider storage to function as a price stabilizer, while others place it at the core of an explanation of intriguing features of commodity price series, such as skewed distributions. Most studies have been developed in the context of the theory of competitive storage where random shocks affect supply or demand. Recently, the endogenous chaotic behavior of markets has become another possible hypothesis regarding the origin of commodity price fluctuations. We develop a nonlinear cobweb model with intra- and inter-annual storage, risk averse agents and adaptive expectations. Like the theory of competitive storage, this nonlinear cobweb model with storage can reproduce some of the stylized facts of agricultural commodity prices (autocorrelation of first rank, low kurtosis and skewness). In addition, the effects of storage on price variation are mixed. In the presence of inter-annual storage, chaotic price series show less variation compared to a situation without inter-annual storage but we find that storage contributes to the endogenous volatility of prices by making chaotic dynamics more likely.

Keywords: agricultural prices, nonlinear cobweb model, endogenous fluctuations, storage

JEL Classification: Q11, E39, D84

Suggested Citation

Mitra, Sophie and Boussard, Jean-Marc, A Simple Model of Endogenous Agricultural Commodity Price Fluctuations with Storage (June 2011). Fordham University Department of Economics Discussion Paper No. 2011-05, Available at SSRN: https://ssrn.com/abstract=1908115 or http://dx.doi.org/10.2139/ssrn.1908115

Sophie Mitra (Contact Author)

Fordham University ( email )

441 East Fordham road
Bronx, NY 10458
United States

HOME PAGE: http://www.fordham.edu/economics/mitra

Jean-Marc Boussard

French National Institute for Agricultural Research (INRA) ( email )

INRA, UMR Economie Publique INRA-AgroParisTech
Av. L. BRETIGNIERES
78850 GRIGNON, 78-Yvelines F-78850
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
102
Abstract Views
1,303
rank
285,155
PlumX Metrics