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Partial stochastic analysis with the European Commission's version of the AGLINK-COSIMO model

  • Authors: Alison Burrell, Zebedee Nii-Naate
  • EUR Number: 25898 EN
  • Publication date: 6/2013

Abstract

This report describes the methodology for performing partial stochastic analysis of the European Commission’s annual outlook projections for agricultural markets. The simulation model used is AGLINK-COSIMO, which is developed and maintained jointly by the OECD and FAO. Partial stochastic analysis quantifies the extent to which future uncertainty surrounding selected exogenous market drivers, which underlie the projections, affects the projected outlook for markets and prices. It does so by providing the range of values within which medium-term outcomes may lie in a future year, given the unforeseen variability exhibited by these exogenous variables in the past. This information supplements the point estimates provided by the outlook projections and allows the user to take into account the relative uncertainty of the various projected outcomes. The report details the statistical underpinnings of the methodology and the sequence of operational steps involved, as well as the additional software required. It then applies the methodology to the Commission’s 2012 outlook projections, providing information on how the projected agricultural market outcomes are affected by the uncertainty surrounding key macroeconomic variables (including exchange rates and the crude oil price) and agricultural crop yields. The potential of the approach to provide information relating to policy or behavioural discontinuities and thresholds, and for analysing specific ‘less likely’ situations, is also illustrated.

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