Estimating the Competitive Storage Model with Stochastic Trends in Commodity Prices

31 Pages Posted: 5 Feb 2020

See all articles by Kjartan Kloster Osmundsen

Kjartan Kloster Osmundsen

University of Stavanger - Department of Mathematics and Physics

Tore Selland Kleppe

University of Stavanger

Roman Liesenfeld

University of Cologne, Department of Economics

Atle Oglend

University of Stavanger

Date Written: January 12, 2020

Abstract

We propose a state-space model (SSM) for commodity prices that combines the competitive storage model with a stochastic trend. This approach fits into the economic rationality of storage decisions, and adds to previous deterministic trend specifications of the storage model. Parameters are estimated using a particle Markov chain Monte Carlo procedure. Empirical application to four commodity markets shows that the stochastic trend SSM is favored over deterministic trend specifications. The stochastic trend SSM identifies structural parameters that differ from those for deterministic trend specifications. In particular, the estimated price elasticities of demand are significantly larger under the stochastic trend SSM.

Keywords: Commodity price dynamics, Bayesian posterior analysis, Particle marginal Metropolis Hastings, State-space model

JEL Classification: C11, C22, C32, C51, C52, C53, C58, Q02

Suggested Citation

Kloster Osmundsen, Kjartan and Kleppe, Tore Selland and Liesenfeld, Roman and Oglend, Atle, Estimating the Competitive Storage Model with Stochastic Trends in Commodity Prices (January 12, 2020). Available at SSRN: https://ssrn.com/abstract=3518402 or http://dx.doi.org/10.2139/ssrn.3518402

Kjartan Kloster Osmundsen (Contact Author)

University of Stavanger - Department of Mathematics and Physics ( email )

Norway

Tore Selland Kleppe

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Roman Liesenfeld

University of Cologne, Department of Economics ( email )

Albertus-Magnus-Platz
D-50931 K├Âln
Germany

Atle Oglend

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

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