Storage And Commodity Markets

by Jeffrey C. Williams , Brian D. Wright

• ISBN13: 9780521023399
• ISBN10: 0521023394
• Format: Paperback
• Copyright: 2005-11-24
• Publisher: Cambridge University Press
• More Book Details

Summary

Storage and Commodity Markets is primarily a work of economic theory, concerned with how the capability to store a surplus affects the prices and production of commodities. Its focus on the behaviour, over time, of aggregate stockpiles provides insights into such questions as how much a country should store out of its current supply of food considering the uncertainty in future harvests. Related topics covered include whether storage or international trade is a more effective buffer and whether stockpiles are more useful in raw or processed form. Several chapters are devoted to analysing such government programmes as price bands, buffer stocks, and strategic reserves. This material is in the domain of applied welfare analysis with public finance. Because the theory presented is sufficiently general, it should be of interest to macroeconomists studying aggregate inventories or savings and to those in operations research studying inventory and pricing policies of large firms.

Table of Contents

Preface	ix
Acknowledgments	xiii
1 Introduction	1	(22)
1.1 Outline of the basic model	7	(2)
1.2 The notion of a system	9	(2)
1.3 The central role of collective behavior	11	(3)
1.4 The assumption of rational expectations	14	(3)
1.5 Relationship to other literature	17	(6)
Part I The basic model
2 Competitive equilibrium with storage	23	(27)
2.1 Storers' arbitrage relationships	24	(4)
2.2 Market-level prices and quantifies	28	(4)
2.3 Market equilibrium with elastic supply	32	(4)
2.4 Equilibrium for a specific example	36	(9)
2.5 Key features of the equilibrium	45	(5)
3 Solving for the storage equilibrium	50	(49)
3.1 Reformulation as a social planner's problem	51	(7)
3.2 An analytical example	58	(4)
3.3 Further considerations with an infinite horizon	62	(3)
3.4 Some "shortcut" solution strategies	65	(6)
3.5 Solutions versus simulations	71	(2)
Appendix: Numerical solution of the storage model	73	(26)
3A.1 The technique of full enumeration	74	(7)
3A.2 The technique of polynomial approximations	81	(9)
3A.3 The cell technique	90	(3)
3A.4 Accuracy of the polynomial technique	93	(6)
4 The effects of storage on production, consumption, and prices	99	(29)
4.1 Characteristics of storage rules	99	(3)
4.2 Long-run distributions	102	(4)
4.3 Sensitivity to supply and demand parameters	106	(10)
4.4 Sensitivity to storage costs	116	(4)
4.5 Sensitivity to the probability distribution of the weather	120	(6)
4.6 Conclusions from the sensitivity analysis	126	(2)
5 Convergence to the steady state	128	(29)
5.1 Expected paths	128	(6)
5.2 Patterns among futures prices	134	(7)
5.3 Response to a change in regime	141	(5)
5.4 The price of land	146	(6)
5.5 Tools learned	152	(5)
Part II Implications of storage for research on time series
6 Time-series properties due to storage	157	(17)
6.1 Extent of serial correlation	159	(3)
6.2 Similarity to random walks	162	(4)
6.3 Persistence of booms and busts	166	(3)
6.4 Higher-order moments	169	(3)
6.5 Applicability of ARMA specifications	172	(2)
7 Tests of rationality	174	(27)
7.1 Tests of forecasting ability	174	(11)
7.2 Tests of bias in futures prices	185	(5)
7.3 Tests of excessive variability in asset prices	190	(2)
7.4 Supply estimation	192	(4)
7.5 Presumption against rational storage	196	(5)
Part III Extensions of the model
8 The market's reaction to news	201	(28)
8.1 Seasonality	203	(9)
8.2 Serial correlation in the random disturbance	212	(5)
8.3 Two-period-lagged supply response	217	(5)
8.4 A quarterly model with production once a year	222	(4)
8.5 Related problems	226	(3)
9 The interaction of storage and trade	229	(44)
9.1 Equilibrium with trade and storage	231	(13)
9.2 Convergence to the steady state	244	(5)
9.3 Trade versus storage	249	(5)
9.4 Storage with a general tendency for net trade	254	(5)
9.5 Sources of inherent randomness	259	(4)
9.6 Relative size of countries	263	(7)
9.7 Final comments on trade	270	(3)
10 Inventories of raw materials, finished goods, and goods in process	273	(37)
10.1 Inventories of raw material and finished goods	277	(13)
10.2 Sensitivity analysis	290	(8)
10.3 Goods in process	298	(9)
10.4 Firm-level versus industry-level behavior	307	(3)
11 Market power and storage	310	(25)
11.1 Market power over distribution and storage	311	(9)
11.2 Monopoly over storage alone	320	(10)
11.3 Implications for modeling market power	330	(5)
Part IV Public interventions
12 Welfare analysis of market stabilization	335	(23)
12.1 The effects of stabilization on individual welfare	337	(4)
12.2 Marketwide analysis	341	(3)
12.3 Sensitivity of distributive effects to specification	344	(4)
12.4 Dynamic welfare analysis	348	(9)
12.5 The necessary range of welfare analysis	357	(1)
13 Floor-price schemes	358	(33)
13.1 Market behavior with a price floor	360	(9)
13.2 Welfare analysis of floor-price schemes	369	(17)
13.3 The merits of private speculative storage in a floor-price scheme	386	(5)
14 Public storage under price bands and price pegs	391	(19)
14.1 The inherent explosiveness of symmetric price-band schemes	394	(4)
14.2 Price-band schemes with private storage and elastic supply	398	(5)
14.3 Price pegs	403	(6)
14.4 Further doubts about price-band schemes	409	(1)
15 Public policies to supplement private storage	410	(45)
15.1 Rationales for public intervention	413	(5)
15.2 The effects of price ceilings on private storage	418	(5)
15.3 The effect of price ceilings in a system with two locations	423	(5)
15.4 Possible public policies for supplementing private storage	428	(10)
15.5 The displacement of private storage by public storage	438	(7)
15.6 The welfare rankings of the various public policies	445	(10)
Part V Epilogue
16 Lessons about commodity markets and modeling strategies	455	(36)
16.1 The standard of the first best	456	(2)
16.2 Nonlinearities and discontinuities	458	(1)
16.3 Endogenous responses to risk	458	(2)
16.4 Multiperiod equlibrium models	460	(1)
16.5 Our model and empirical work on commodity markets	461	(2)
16.6 For the future	463	(2)
References	465	(26)
Author index	491	(6)
Subject index	497