Hirbod Assa, Amal Dabbous, and Nikolay Gospodinov
Working Paper 2013-8
September 2013

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This paper embeds a staggered price feature into the standard speculative storage model of Deaton and Laroque (1996). Intermediate goods inventory speculators are added as an additional source of intertemporal linkage, which helps us to replicate the stylized facts of the observed commodity price dynamics. Incorporating this type of friction into the model is motivated by its ability to increase price stickiness which, gives rise to a higher degree of persistence in the first two conditional moments of commodity prices. The structural parameters of our model are estimated by the simulated method of moments using actual prices for four agricultural commodities. Simulated data are then employed to assess the effects of our staggered price approach on the time series properties of commodity prices. Our results lend empirical support to the possibility of staggered prices.

JEL classification: Q11, C15, E21, O13, G12

Key words: commodity price determination, staggered pricing, high persistence, conditional heteroskedasticity, simulated method of moments

The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Hirbod Assa, Institute for Financial and Actuarial Mathematics, University of Liverpool, Mathematical Sciences Building, Peach Street, Liverpool L69 7ZL, United Kingdom, h.assa@liverpool.ac.uk; Amal Dabbous, Department of Economics, Concordia University, 1455 de Maisonneuve Boulevard West, Montreal, Quebec H3G 1M8, Canada, amd11edu@hotmail.com; or Nikolay Gospodinov, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E., Atlanta, GA 30309-4470, USA, nikolay.gospodinov@atl.frb.org.

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