This paper develops a simultaneous stochastic rational-expectations model of futures- and spot-price determination. Using the model, the authors find that increases in what they term speculative intensity increase spot-price variability arising from storage-cost shocks, but decrease spot-price variability from demand shocks. In contrast, increases in speculative intensity unambiguously decrease futures-price variability, regardless of the underlying source of disturbances. The authors are able to develop these comparative-static results because the model has a unique equilibrium. Copyright 1991 by Oxford University Press.
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Article provided by Oxford University Press in its journal Economic Inquiry.
Volume (Year): 29 (1991) Issue (Month): 4 (October) Pages: 737-51 Download reference. The following formats are available: HTML
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Handle: RePEc:oup:ecinqu:v:29:y:1991:i:4:p:737-51
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