Commodity Aggregation Research Articles

Forward Exchange, Futures Trading, and Spot Price Variability: A General Equilibrium Approach

We investigate the effect of opening a forward or futures market on spot price or real exchange rate variability in a two-agent, two-good, two-state general equilibrium model. We derive a linear approximation to the change in spot price variability which results from opening such a market. This is shown to depend upon such familiar parameters as substitution elasticities, marginal propensities to consume, and degrees of risk aversion. Our analysis highlights the importance of the income transfers which occur as a result of capital gains and losses in the forward market. We find that there is some presumption in favor of the view that opening a forward market reduces spot price variability. The presumption is strengthened the less risk averse are agents. THE CENTRAL ISSUE ADDRESSED in this paper has long been a subject for debate, both practical and academic. It concerns the effect of forward and futures trading on the stability of spot prices in the markets for both foreign exchange and for commodities. In the real world, this issue is of obvious importance; some active futures markets have been closed on the grounds of their alleged destabilizing effects on prices.2 Thus it is no surprise that this topic has been the subject of extensive empirical research.3 Recently, moreover, a number of theoretical studies on this topic have appeared (see Peck (1976), Turnovsky (1979, 1983), Sarris (1980), Kawai (1983a, 1983b, 1984), and Turnovsky and Campbell (1985)). The existing studies without exception adopt a partial equilibrium approach. As a general consequence of this, therefore, these studies ignore completely any income effects generated by the creation of forward and futures markets. The present paper, in contrast, takes a general equilibrium approach in order to analyze the question in the context of markets where income effects can be expected to play a significant role. We shall argue in Section 2 that forward and futures transactions in foreign exchange and in agricultural output may be thought of as dealing in futures contracts for broad commodity aggregates; income effects which appear in the spot markets for such aggregates affect futures transactions significantly. In order to analyze such general equilibrium effects, we develop a rational expectations model with futures and spot markets. The effect of opening a forward or futures market is isolated by comparing equilibria in our futures-spot market model when the futures market is open and when it is closed. The difference

The Neoclassical Model of Consumer Demand with Identically Priced Commodities: An Application to Time-of-Use Electricity Pricing

Hick's theorem permits aggregation of commodities when their relative prices are fixed, but, contrary to a widely expressed view, it does not require that they be aggregated. Even where commodities have identical prices, all of their income elasticities and many of their price elasticities can be identified through econometric estimation. Our empirical illustration uses the generalized Leontief indirect utility function with data from the Wisconsin Residential Electricity Pricing Experiment. We model the demand for six commodities although there are only two unique prices.

A Confirmation of the Relation between Inflation and Relative Price Variability

Previous articleNext article No AccessConfirmations and ContradictionsA Confirmation of the Relation between Inflation and Relative Price VariabilityConstantine Glezakos and Jeffrey B. NugentConstantine Glezakos Search for more articles by this author and Jeffrey B. Nugent Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 94, Number 4Aug., 1986 Article DOIhttps://doi.org/10.1086/261415 Views: 3Total views on this site Citations: 11Citations are reported from Crossref Copyright 1986 The University of ChicagoPDF download Crossref reports the following articles citing this article:Hiranya K. Nath, Jayanta Sarkar , Empirical Economics 56, no.66 ( 2019): 2001.https://doi.org/10.1007/s00181-018-1422-yMonir Uddin Ahmed, Md. Moniruzzaman Muzib, Md. Mahedi Hasan Inflation, inflation uncertainty and relative price variability in Bangladesh, Eurasian Economic Review 6, no.33 (Sep 2016): 389–427.https://doi.org/10.1007/s40822-016-0055-8Deniz Baglan, M. Ege Yazgan, Hakan Yilmazkuday Relative price variability and inflation: New evidence, Journal of Macroeconomics 48 (Jun 2016): 263–282.https://doi.org/10.1016/j.jmacro.2016.04.004Christopher Hajzler, David Fielding Relative price and inflation variability in a simple consumer search model, Economics Letters 123, no.11 (Apr 2014): 17–22.https://doi.org/10.1016/j.econlet.2014.01.018Christophe Muller THE MEASUREMENT OF POVERTY WITH GEOGRAPHICAL AND INTERTEMPORAL PRICE DISPERSION: EVIDENCE FROM RWANDA, Review of Income and Wealth 54, no.11 (Mar 2008): 27–49.https://doi.org/10.1111/j.1475-4991.2007.00258.xMarcio de Oliveira Júnior Inflation and Price Dispersion: Evidence from the Brazilian Stabilization Program, SSRN Electronic Journal (Jan 1999).https://doi.org/10.2139/ssrn.159584Constantine Glezakos, Jeffrey B. Nugent Relative Price Variability, Inflation Rate Uncertainty, and Postwar Investment of the United States, Journal of Post Keynesian Economics 19, no.22 (Nov 2015): 181–194.https://doi.org/10.1080/01603477.1996.11490104Rajeev K. Goel, Rati Ram Inflation and relative-price variability: the effect of commodity aggregation, Applied Economics 25, no.55 (May 2006): 703–709.https://doi.org/10.1080/00036849300000017NATHANIEL H. LEFF, KAZUO SATO Homogeneous Preferences and Heterogeneous Growth Performance: International Differences in Saving and Investment Behavior, Kyklos 46, no.22 (May 1993): 203–223.https://doi.org/10.1111/j.1467-6435.1993.tb02421.xNathaniel H. Leff, Kazuo Sato Modelling the demand for foreign savings in developing countries: Testing a hypothesis with Latin American data, Journal of Development Studies 25, no.44 (Jul 1989): 537–549.https://doi.org/10.1080/00220388908422128Constantine Glezakos, Jeffrey B. Nugent The relationship between the rate of inflation and its unpredictability in high inflation Latin American countries, World Development 15, no.22 (Feb 1987): 291–293.https://doi.org/10.1016/0305-750X(87)90084-2

The Aggregation of Commodities in Quantity Rationing Models

The Aggregation of Commodities in Quantity Rationing Models

Commodity aggregation in applied demand analysis: a note

La nota analizza empiricamente gli effetti della aggregazione fra beni sulla stima di elasticita alla spesa totale ed al prezzo nel sistema di domanda A.I..

Perfect Price Aggregation and Empirical Demand Analysis

THIS PAPER CONSIDERS how certain theoretical results on consistent commodity aggregation can be applied to the problem of the estimation of a complete system of demand equations. The method proposed here builds upon the classic results of Gorman [16], particularly the case he calls perfect price aggregation. These results are well known in the literature on two-stage budgeting but have not been widely applied to problems of empirical demand analysis. This relative neglect of perfect price aggregation is regrettable because several of their features recommend their use in econometric applications. In the perfect price aggregate approach to demand analysis, demand equations are characterized as a two-level system consisting of a system of group expenditure functions and a number of systems of conditional demand functions. This two-level system provides a manageable way of introducing greater detail into a complete system of demand equations. Information about particular commodities may be introduced in the specification of conditional demand functions. As will be discussed below, the two-level system can be estimated by an iterative estimation method in which the maximum number of demand equations which can be estimated is greatly increased over the number found in past estimates of complete systems of demand equations. Even when one is principally interested in estimating group expenditures the perfect price aggregate approach is attractive because the intragroup substitutions due to detailed price changes can affect total group expenditures and this effect is taken into consideration through the computation of the perfect price indices. Thus it may be possible that a perfect price aggregate model will yield better estimates of group expenditures than would an approach which did not explicitly treat aggregation problems. Another pleasing feature of the perfect price aggregate approach to demand analysis is that it avoids the misspecification which results when the commodity

Natural Resource Scarcity: A Statistical Analysis

Statistical analysis is used to evaluate trends in the relative prices of natural resource commodity aggregates and to predict the adequacy of natural resource supplies. The model incorporates the Brown-Durbin custom test and Quandt's log-liklihood ratio. The results indicate that a relative price series is not stable enough to predict a consistent pattern of change and it would be unwise to base materials and extraction policies on this framework. This conclusion is reached, in part, because of the significant changes in the US economy and institutions in recent years. 22 references.

A comparative study of complete systems of demand functions

Ten models of consumer demand, including the indirect translog model, the linear expenditure system and the Rotterdam model, are applied to Swedish data and compared, using fit and predictive performance as criteria. Demand models tend to be superior to naive models, but nonadditive models are not clearly better than additive. Each model is estimated on two levels of commodity aggregation. The results show that the estimated structures depend on the level of aggregation.

A priori error bounds for procurement commodity aggregation in logistics planning models

AbstractA complete logistical planning model of a firm or public system should include activities having to do with the procurement of supplies. Not infrequently, however, procurement aspects are difficult to model because of their relatively complex and evanescent nature. This raises the issue of how to build an overall logistics model in spite of such difficulties. This paper offers some suggestions toward this end which enable the procurement side of a model to be simplified via commodity aggregation in a “controlled” way, that is, in such a manner that the modeler can know and control in advance of solving his model how much loss of accuracy will be incurred for the solutions to the (aggregated) overall model.

On unit prices and their use in the analysis of the international specialization pattern within heterogeneous industries

The existence of factor intensity reversals between industrial countries has sometimes been attributed to differences in intra-industry specialisation. The industries studied are in fact quite heterogeneous. Consequently the relationships between the specialisation pattern of individual countries and differences in technology between industries may be obscured. In this paper a new method is presented with which specialisation of engineering trade can be studied in great detail. The method rests on the hypothesis that so called (metric) ton prices can be used as a proxy variable for differences in technology in a cross-section of engineering products. This hypothesis is further specified and tested in the paper for a cross-section of engineering products consisting of 40 subindustries of the Swedish engineering industry. If the outcome of the test can be assumed to hold both for a lower level of commodity aggregation and for other countries as well, the new method can be used to test different trade theories (including the factor proportions theory) on the engineering trade of industrial countries. It uses among other variables three variables constructed from the ton prices in engineering exports of OECD-Europe. The results of this paper carry major implications also on the construction and earlier use of price indices of engineering products. The results seem to imply that ton prices fo not measure product prices of engineering goods but rather the technology used in converting tons of metals into units of engineering goods. The price indices used in studies estimating price elasticities in foreign trade or production functions on time series data rest, however, im part on such an assumption.