A linear rational expectations model of the United States soybean oil market

In this study a linear rational expectations storage model of the U.S. soybean oil market is estimated. An inventory demand equation is specified to linearly depend on the expected appreciation in stocks value. Model estimation requires the solution of an expectational difference equation and computation of the multi-step ahead forecasts of exogenous variables. The later are solved analytically by repeated substitution, making use of the stochastic processes governing exogenous variables. The simultaneous nature of prices and inventories determination requires the use of FIML estimation method. Results obtained show statistical significance in the speculative inventory demand slope parameter and demonstrate that good results can be obtained for soybean oil storage using a linear model. A test of the rational expectation cross-equation restrictions only gave a p-value of 0.01, suggesting that these restrictions would be rejected at conventional significance levels.