Competitive Storage and Commodity Price Dynamics

J. OF POLITICAL ECONOMY, Vol. 104 No. 5

Posted: 26 Feb 1997

See all articles by Angus Deaton

Angus Deaton

Princeton University; National Bureau of Economic Research (NBER)

Guy Laroque

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Abstract

By buying cheap and selling dear, risk-neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand. Commodity prices are variable and strongly positively correlated from one year to the next. The variability is often explained by supply factors, and the autocorrelation by the activities of speculators. We show that this explanation is not consistent with the evidence. Speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence, but not to the high levels that are observed in the data.

JEL Classification: G12

Suggested Citation

Deaton, Angus S. and Laroque, Guy, Competitive Storage and Commodity Price Dynamics. J. OF POLITICAL ECONOMY, Vol. 104 No. 5, Available at SSRN: https://ssrn.com/abstract=8139

Angus S. Deaton (Contact Author)

Princeton University ( email )

Woodrow Wilson School
Princeton, NJ 08544
United States
609-258-5967 (Phone)
609-258-5974 (Fax)

HOME PAGE: http://www.wws.princeton.edu/~deaton

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Guy Laroque

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
92245 Malakoff Cedex
France
+33 1 4117 7718 (Phone)
+33 1 4117 7666 (Fax)

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