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Competitive storage and commodity price dynamics

Deaton, A.; Laroque, G.; (1996) Competitive storage and commodity price dynamics. Journal of Political Economy , 104 (5) pp. 896-923. 10.1086/262046. Green open access

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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.

Type: Article
Title: Competitive storage and commodity price dynamics
Open access status: An open access version is available from UCL Discovery
DOI: 10.1086/262046
Publisher version: http://dx.doi.org/10.1086/262046
Language: English
Additional information: © 1996 University of Chicago Press
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/16840
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