A model of world coffee economy: 1950–68

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Abstract
This purpose of the present study is to analyse the structure of the world coffee market. Production, consumption, stocks and prices in the world coffee market may or may not be simultaneously determined. In this paper, a simultaneous equation model of the world coffee economy is put forward to explain the structure of the world coffee market. In Section I, the general background and sources of data are mentioned. In Section II, the model is outlined and alternative estimates of equations of a model are presented on the basis of data drawn from the 1950–68 period. While in Section III, the predictive performance of the model during the sample and the post-sample period is examined. It has been often stated that the fluctuations which have occurred in the world coffee export proceeds stem from factors on the supply side imf and ibrd, 1969) and steps were taken, therefore, by the International Coffee Organisation in 1962 to stabilize prices and earnings received by coffee producing countries. One of the main policy weapons used was to restrict market supply. The econometric model developed in this paper tries to take full cognizance of the existence of the International Coffee Organisation and the policy of quota restrictions imposed by the member countries of that organization. Our results show taht the policy of output control can help to avert the adverse effects of cyclical changes in production on the prices of primary products. The model is used for short-term forecasting and although its predictive performance is not entirely satisfactory, it can be clearly seen that the model performs better than naive forecasts.

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