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Estimating a nonlinear rational expectations commodity price model with unobservable state variables

Deaton, A.; 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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Abstract

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.

Type:Article
Title:Estimating a nonlinear rational expectations commodity price model with unobservable state variables
DOI:10.1002/jae.3950100503
Publisher version:http://dx.doi.org/10.1002/jae.3950100503
Language:English
UCL classification:UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics

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