NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On The Behavior of Commodity Prices

Angus Deaton, Guy Laroque

NBER Working Paper No. 3439
Issued in September 1990
NBER Program(s):   EFG

The classical theory of commodity price determination integrates myopic supply and demand on the one hand with competitive storage (speculation) under rational expectations on the other. Taking into account the fact that inventories mist; be non-negative, this paper derives from the theory testable implications on the behavior of prices, and makes a first attempt to confront these implications with the empirical evidence. The nonlinearities turn out to be a crucial ingredient in matching the stylized facts, particularity the asymmetries and the sharp upward flares that characterize many commodity prices. The model, simple as it is, goes a long way in reproducing the main features of the data for a range of commodities.

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Document Object Identifier (DOI): 10.3386/w3439

Published: Review of Economic Studies, vol. 59, pp. 1-23 (1992)

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