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Explaining the German hog price cycle: A nonlinear dynamics approach

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  • Berg, Ernst
  • Huffaker, Ray

Abstract

We investigated German hog-price dynamics with an innovative ‘diagnostic’ modeling approach. Hog-price cycles are conventionally modeled stochastically—most recently as randomly-shifting sinusoidal oscillations. Alternatively, we applied nonlinear time series analysis to empirically reconstruct a deterministic, low-dimensional, and nonlinear attractor from observed hog prices. We next formulated a structural (explanatory) model of the pork industry to synthesize the empirical hog-price attractor. Model simulations demonstrate that low price-elasticity of demand contributes to aperiodic price cycling – a well know result – and further reveal two other important driving factors: investment irreversibility (caused by high specificity of technology), and liquidity-driven investment behavior of German farmers.

Suggested Citation

  • Berg, Ernst & Huffaker, Ray, 2015. "Explaining the German hog price cycle: A nonlinear dynamics approach," 2015 International European Forum (144th EAAE Seminar), February 9-13, 2015, Innsbruck-Igls, Austria 206210, International European Forum on System Dynamics and Innovation in Food Networks.
    • Handle: RePEc:ags:iefi15:206210
    DOI: 10.22004/ag.econ.206210
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    References listed on IDEAS

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    Cited by:

    1. Zhu, Dingju, 2016. "Qualitative and quantitative combined nonlinear dynamics model and its application in analysis of price, supply–demand ratio and selling rate," Chaos, Solitons & Fractals, Elsevier, vol. 89(C), pages 54-72.

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