{
  "title": "Reviving the Competitive Storage Model: A Holistic Approach to Food Commodity Prices",
  "publication": "IMF Working Papers, March 1, 2011",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/reviving-the-competitive-storage-model-a-holistic-approach-to-food-commodity-prices-24720",
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  "summary": "We revive in this paper the empirical relevance of the competitive storage model by taking a holistic approach to food commodity prices.",
  "sections": [
    {
      "heading": "Summary and Approach",
      "content": "- Authors: Norbert Funke, Weifeng Wu, Yanliang Miao\n- Publication date: March 1, 2011\n- Series: Working Paper No. 2011/064; Issue: 064\n- Core approach: Augment the Deaton and Laroque (1992, 1996) competitive storage model by incorporating more comprehensive and realistic supply and demand factors:\n  - output and demand trends\n  - shocks to the yield\n  - time-varying interest rates\n- Computational note: The computational burden increases exponentially with the augmented specification.\n- Objective: Test empirical relevance of the competitive storage model and replicate key empirical patterns of food commodity prices."
    },
    {
      "heading": "Key Findings",
      "content": "- The augmented model succeeds in replicating all four key patterns of food commodity prices.\n- Long-run trend:\n  - The long-run declining trend of food prices may come to a halt or even reverse due to the shifting balance between supply and demand.\n- Short-run fluctuations:\n  - Short-run price fluctuations are mainly attributable to sizeable, though low-probability, shocks to output such as inclement weather.\n- Monetary policy effects:\n  - The impact of monetary policy, though small in normal times, is nonlinear and asymmetric, and can become large if the real rate passes a certain threshold."
    },
    {
      "heading": "Model Enhancements and Methodology",
      "content": "- Additions to the seminal Deaton and Laroque framework:\n  - incorporation of output and demand trends\n  - explicit modeling of yield shocks\n  - allowing for time-varying real interest rates\n- Outcome:\n  - Despite a sharply increased computational burden, the augmented model reproduces empirical stylized facts for food commodity prices."
    },
    {
      "heading": "Policy Implications and Scenarios",
      "content": "- Scenario: Shifting balance between supply and demand\n  - Potential outcome: halt or reversal of long-run declining food price trend.\n- Scenario: Large negative output shocks (e.g., inclement weather)\n  - Potential outcome: dominant driver of short-run price spikes.\n- Monetary policy considerations:\n  - In normal conditions: small effects on food prices.\n  - Nonlinear/asymmetric regime: substantial effects if the real rate crosses a critical threshold.\n- Implication for policymakers:\n  - Monitor real interest rate levels relative to identified thresholds, and account for low-probability large output shocks when assessing food price volatility and designing policy responses.\n\n---\n\n Content in this bundle\n\n- wp1164\n  - wp1164 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1164 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/reviving-the-competitive-storage-model-a-holistic-approach-to-food-commodity-prices-24720"
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    "Authors: Norbert Funke, Weifeng Wu, Yanliang Miao",
    "Published: March 1, 2011",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781455228065.001",
    "Authors: Norbert Funke, Weifeng Wu, Yanliang Miao",
    "Publication date: March 1, 2011",
    "Series: Working Paper No. 2011/064; Issue: 064",
    "Core approach: Augment the Deaton and Laroque (1992, 1996) competitive storage model by incorporating more comprehensive and realistic supply and demand factors:",
    "Computational note: The computational burden increases exponentially with the augmented specification.",
    "Objective: Test empirical relevance of the competitive storage model and replicate key empirical patterns of food commodity prices.",
    "The augmented model succeeds in replicating all four key patterns of food commodity prices.",
    "Long-run trend:",
    "Short-run fluctuations:",
    "Monetary policy effects:",
    "Additions to the seminal Deaton and Laroque framework:",
    "Outcome:",
    "Scenario: Shifting balance between supply and demand",
    "Scenario: Large negative output shocks (e.g., inclement weather)",
    "Monetary policy considerations:",
    "Implication for policymakers:",
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