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The Inefficiency of Interest-Rate Subsidies in Commodity Price Stabilization

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  • Bruce L. Gardner
  • Ram�n L�pez

Abstract

Interest-rate subsidies have been used to stimulate commodity stockholding, with the intention of stabilizing prices. However, reductions in price variability can be achieved at less government cost using a direct storage subsidy, and it is possible that an interest-rate subsidy will increase price variability even though the interest subsidy increases mean stocks held. These results are demonstrated using a stochastic dynamic programming model of optimal private storage, with parameter values relevant to agricultural commodity markets, and with particular reference to the U.S. soybean market. Copyright 1996, Oxford University Press.

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File URL: http://hdl.handle.net/10.2307/1243269
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 78 (1996)
Issue (Month): 3 ()
Pages: 508-516

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Handle: RePEc:oup:ajagec:v:78:y:1996:i:3:p:508-516

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Cited by:
  1. Cesar Revoredo, 2000. "On The Solution Of The Dynamic Rational Expectations Commodity Storage Model In The Presence Of Stockholding By Speculators And Processors," Computing in Economics and Finance 2000 42, Society for Computational Economics.
  2. Christophe Gouel, 2013. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters, in: The Economics of Food Price Volatility National Bureau of Economic Research, Inc.
  3. Jha, Shikha & Srinivasan, P. V., 1999. "Grain price stabilization in India: Evaluation of policy alternatives," Agricultural Economics, Blackwell, vol. 21(1), pages 93-108, August.
  4. Carter, C.A & Cesar L. Revoredo Giha, 2005. "The Interaction of Working and Speculative Commodity Stocks," Environmental Economy and Policy Research Working Papers 03.2005, University of Cambridge, Department of Land Economics, revised 2005.
  5. Christophe Gouel & Sébastien Jean, 2012. "Optimal Food Price Stabilization in a Small Open Developing Country," Working Papers 2012-01, CEPII research center.
  6. Myers, Robert J., 2013. "Evaluating the effectiveness of inter-regional trade and storage in Malawi’s private sector maize markets," Food Policy, Elsevier, vol. 41(C), pages 75-84.
  7. Brennan, Donna C., 2002. "Savings and technology choice for risk averse farmers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), December.
  8. Peterson, Hikaru Hanawa & Tomek, William G., 2000. "Commodity Price Behavior: A Rational Expectations Storage Model of Corn," Working Papers 127682, Cornell University, Department of Applied Economics and Management.
  9. Brennan, Donna, 2003. "Price dynamics in the Bangladesh rice market: implications for public intervention," Agricultural Economics, Blackwell, vol. 29(1), pages 15-25, July.

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