Deaton, A. and Laroque, G. (1995) Estimating a nonlinear rational expectations commodity price model with unobservable state variables. Journal of Applied Econometrics , 10 (s1) S9-S40. 10.1002/jae.3950100503.
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This paper is concerned with the estimation of a model in which a possibly serially correlated stochastic process, the harvest of an agricultural commodity, generates a competitive price in a market comprising both final consumers and risk-neutral speculators who can store the commodity at a cost in the anticipation of profit. Because storage cannot be negative, the relationship between prices and harvests is inherently nonlinear and is an unpromising candidate for a linear-quadratic model, or for linearization more generally. Instead, we calculate numerically a policy function in which price is a function of two unobservable state variables, the harvest and current availability, and we use the result to fit the price data.
|Title:||Estimating a nonlinear rational expectations commodity price model with unobservable state variables|
|UCL classification:||UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics|
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