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The role of market expectations in commodity price dynamics: Evidence from oil data |
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| Institution: | 1. The University of Texas at Austin, 1 University Station, B6000, Austin, TX 78712, USA;2. Pepperdine University, 18111 Von Karman Ave, Irvine, CA 92612, USA;1. Southern Methodist University, Department of Economics, 3300 Dyer Street, Suite 301, Dallas, TX 75275, USA;2. Federal Reserve Bank of Dallas, Research Department, 2200 N. Pearl St, Dallas, TX 75201, USA |
| Abstract: | This paper examines the contribution of market expectations to commodity price dynamics. It proposes a dynamic competitive storage framework with an explicit expectations shock along with concurrent shocks to study the commodity price movements. This allows for a refined analysis of the expectations’ effect on price and inventory and the estimation of the expectations. Applied to the world crude oil market, it finds that the contribution of market expectations to the crude oil spot price movements is limited from 1987 to 2014. |
| Keywords: | Commodity spot price Commodity inventory Expectations shock Dynamic equilibrium model State space model |
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