Copper econometric models

Abstract

There are three copper econometric models in the open literature: Arthur D. Little (ADL) model, Fisher et al. (FCB) model, and Charles River Associates (CRA) model. This paper explains these models, re-estimates their coefficients by using identical data (for the period from 1957–1973), synthesizes a copper econometric model by tailoring various elements of the models into a composite model, and compares several of the output of this composite model with actual past data. The three models vary in the extent of their coverage. In general, the ADL model concentrates on U.S. refined copper market, the FCB model covers the international copper primary market more thoroughly than the U.S. market, and the CRA model is evenly distributed between the international and U.S. primary markets. All three models use almost the same exogenous variables for the input information. The three models examined show almost identical strength and weaknes in simulating copper markets. Based on historical copper market relationships, the three models apparently are not able to predict future markets efficiently. For example, none of the three models could have predicted dramatical copper price creases in 1973. The Penn Composite Model, properly combined to contain only the strength of the ADL and FCB models, has improved model predictability, but it is still far from satisfactory. The model can be greatly polished if it takes into account copper companies' production schemes and government's intentions simultaneously.