A Staggered Pricing Approach to Modeling Speculative Storage: Implications for Commodity Price Dynamics

30 Pages Posted: 22 Mar 2015

See all articles by Hirbod Assa

Hirbod Assa

University of Liverpool

Amal Dabbous

Concordia University, Quebec - Department of Economics

Nikolay Gospodinov

Federal Reserve Bank of Atlanta

Date Written: September 1, 2013

Abstract

This paper embeds a staggered price feature into the standard speculative storage model of Deaton and Laroque (1996). Intermediate goods inventory speculators are added as an additional source of intertemporal linkage, which helps us to replicate the stylized facts of the observed commodity price dynamics. Incorporating this type of friction into the model is motivated by its ability to increase price stickiness which, gives rise to a higher degree of persistence in the first two conditional moments of commodity prices. The structural parameters of our model are estimated by the simulated method of moments using actual prices for four agricultural commodities. Simulated data are then employed to assess the effects of our staggered price approach on the time series properties of commodity prices. Our results lend empirical support to the possibility of staggered prices.

Keywords: commodity price determination, staggered pricing, high persistence, conditional heteroskedasticity, simulated method of moments

JEL Classification: Q11, C15, E21, O13, G12

Suggested Citation

Assa, Hirbod and Dabbous, Amal and Gospodinov, Nikolay, A Staggered Pricing Approach to Modeling Speculative Storage: Implications for Commodity Price Dynamics (September 1, 2013). FRB Atlanta Working Paper No. 2013-8. Available at SSRN: https://ssrn.com/abstract=2579819 or http://dx.doi.org/10.2139/ssrn.2579819

Hirbod Assa

University of Liverpool ( email )

Institute for Financial and Actuarial Mathematics,
Liverpool, L18 8BF
United Kingdom
447522173132 (Phone)

HOME PAGE: http://sites.google.com/site/assahirbod/

Amal Dabbous

Concordia University, Quebec - Department of Economics ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Nikolay Gospodinov (Contact Author)

Federal Reserve Bank of Atlanta ( email )

Atlanta, GA 30309
United States

HOME PAGE: https://www.frbatlanta.org/research/economists/gospodinov-nikolay.aspx?panel=1

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