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Modelling Market Fundamentals: A Model of the Aluminum Market

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  • Gilbert, Christopher L

Abstract

The standard approach to modeling primary commodity markets under rational expectations is to relate the commodity price to the production and consumption "surprises" (i.e. the innovations on the equations). Using the world aluminum market, we show how this approach can be modified so that both the price and stock can be written in terms of one or more market "fundamentals" which reflect the supply-demand balance on the market. This approach allows joint estimation of production, consumption, stock demand and price equations subject to cross-equation restrictions. It may be seen as a formalization of the approach adopted by metals industry analysts. Copyright 1995 by John Wiley & Sons, Ltd.

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  • Gilbert, Christopher L, 1995. "Modelling Market Fundamentals: A Model of the Aluminum Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 385-410, Oct.-Dec..
    • Handle: RePEc:jae:japmet:v:10:y:1995:i:4:p:385-410
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    Cited by:

    1. Jean-Thomas Bernard & Lynda Khalaf & Maral Kichian & Sebastien Mcmahon, 2008. "Forecasting commodity prices: GARCH, jumps, and mean reversion," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(4), pages 279-291.
    2. Pieroni, Luca & Ricciarelli, Matteo, 2008. "Modelling dynamic storage function in commodity markets: Theory and evidence," Economic Modelling, Elsevier, vol. 25(5), pages 1080-1092, September.
    3. Bridges, Eileen & Freytag, Per V., 2009. "When do firms invest in offensive and/or defensive marketing?," Journal of Business Research, Elsevier, vol. 62(7), pages 745-749, July.
    4. Esposti, Roberto, 2021. "On the long-term common movement of resource and commodity prices.A methodological proposal," Resources Policy, Elsevier, vol. 72(C).
    5. Johnsen, Tor Arnt, 2001. "Demand, generation and price in the Norwegian market for electric power," Energy Economics, Elsevier, vol. 23(3), pages 227-251, May.
    6. Boschi, Melisso & Pieroni, Luca, 2009. "Aluminium market and the macroeconomy," Journal of Policy Modeling, Elsevier, vol. 31(2), pages 189-207.
    7. Brunetti, Celso & Gilbert, Christopher L., 1995. "Metals price volatility, 1972-1995," Resources Policy, Elsevier, vol. 21(4), pages 237-254, December.
    8. Gilbert, Christopher L., 2022. "Warehouse load-out queues and aluminum prices," Journal of Commodity Markets, Elsevier, vol. 28(C).
    9. Kjersti-Gro Lindquist, 1998. "The Response by the Norwegian Aluminium Industry to Changing Market Structure," Discussion Papers 237, Statistics Norway, Research Department.
    10. Dahl, Christian M. & Iglesias, Emma M., 2009. "Volatility spill-overs in commodity spot prices: New empirical results," Economic Modelling, Elsevier, vol. 26(3), pages 601-607, May.
    11. Lindquist, Kjersti-Gro, 2001. "The response by the Norwegian aluminium industry to changing market structure," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 79-98, January.
    12. Baldursson, Fridrik M., 1999. "Modelling the price of industrial commodities," Economic Modelling, Elsevier, vol. 16(3), pages 331-353, August.
    13. Esposti, Roberto, 2017. "What Makes Commodity Prices Move Together? An Answer From A Dynamic Factor Model," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 260889, European Association of Agricultural Economists.
    14. Clinton Watkins & Michael McAleer, 2004. "Econometric modelling of non‐ferrous metal prices," Journal of Economic Surveys, Wiley Blackwell, vol. 18(5), pages 651-701, December.
    15. Sanidas, Elias, 2014. "Four harmonic cycles explain and predict commodity currencies' wide long term fluctuations," Technological Forecasting and Social Change, Elsevier, vol. 87(C), pages 135-151.

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