A THEORY OF COMMODITY PRICE FLUCTUATIONS

This paper studies the price fluctuations of storable commodities that are traded in open markets and are subject to random shocks to demand or, more particularly, to supply. It relaxes the common assumption th at the shocks are identically and independently distributed in favor o f temporally dependent and periodic disturbances. The existence of a u nique stationary rational expectations equilibrium is demonstrated for each of tile models analyzed, and testable implications of the models are derived. An illustrative empirical investigation is then undertak en for the model with periodic disturbances using monthly time-series observations for seven commodities over the period 1960-93.