Inventory and equilibrium adjustments in international commodity markets: a multi-cointegration approach

Recent advances in cointegration tests and error correction models are applied to the analysis of commodity inventory behaviour. Multi-cointegration was considered in inventory series of seven internationally traded products. In contrast to previous works on inventory behaviour which first hypothesize a relationship and then gather empirical evidence to emulate the postulated behaviour, an error correction model was used to represent theoretical inventory relationships which are established by multi-cointegration tests. The results support the use of this approach to determine the optimal stockpiling rules of producers and consumers.

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