Optimal price dynamics and speculation with a storable good
AbstractWhen the seller of a storable good must keep pace with inflation, buyers will speculate on the timing of price increases to buy and store just before. The unique Markov perfect equilibrium of this game involves recurrent periods during which the firm injects uncertainty into its price, while speculators store in increasing numbers, with possibly a final "run." The stochastic policies of many firms consistently aggregate back to a price index growing at the general rate of inflation. The model establishes that (1) inflation causes price uncertainty; and (2) speculation can be destabilizing and welfare-reducing even under perfect information. Copyright 1989 by The Econometric Society.
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Bibliographic InfoPaper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 8708.
Length: 52 pages
Date of creation: 1987
Date of revision:
Other versions of this item:
- Benabou, Roland, 1989. "Optimal Price Dynamics and Speculation with a Storable Good," Econometrica, Econometric Society, vol. 57(1), pages 41-80, January.
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