A micro-macro approach to commodity market analysis:risk, structural modelling and forecasting

This work concerns the analysis of primary commodity markets from both a micro and macro perspective and is composed of three parts. In the first part, we investigate how rural households in poor countries, depending for their livelihood on crop production, cope ex-ante with risk through a strategy of a diversified portfolio of crops. To this end, a portfolio model of production is set up from which structural estimates of risk preference and technology parameters are derived. The model is fit to longitudinal data from a sample of coffee producers in Ethiopia. The second part is concerned with the modelling of commodity markets within a rational expectations approach. A special emphasis is placed on perennial crops and a world model for the cocoa market is specified, accounting for speculative stockholding. From the structural model a solved form in price and stocks is derived, using two constructed variables capturing excess supply in the short and long term. The derivation of restrictions stemming from the hypothesized rational expectations by stockholders is then illustrated. Furthermore, an equilibrium analysis of the model is carried out using the price rational expectations solution, in order to investigate the qualitative response of the system to shocks. In the third part, the reduced form in price and stocks previously derived from a short-run version of the model is estimated using annual data on the cocoa market and the rational expectations restrictions are tested. The estimates obtained using the generalized method of moments (GMM) are then compared with those obtained from a restricted vector autoregressive (VAR) model presenting a matching specification.