"The empirical relevance of the competitive storage model" by Cafiero et al. (2011): Replication, robustness, and extension

Most of the empirical work and policy analysis in commodity markets rely on the storage model with rational expectations. However, its empirical validity remains challenged. Cafiero et al. (2011) inject new life into the commodity price literature by addressing the major empirical concern, which is the model's inability to explain the observed patterns of autocorrelation in prices. This article aims to reproduce the main estimation results of the structural parameters of the storage model obtained by Cafiero et al. (2011) and then to extend the analysis with a series of robustness checks of the original findings. The successful replication exercise supports the validity of the published results. Regarding the robustness analysis, I find that the results are particularly sensitive to the efficiency of the estimator used and the spurious averaging effect resulting from the construction of annual data series. Future structural estimations of the storage model should account for both factors for more reliable estimates to be obtained.