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Commodities, financialization, and heterogeneous agents

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  • Branger, Nicole
  • Grüning, Patrick
  • Schlag, Christian

Abstract

The term 'financialization' describes the phenomenon that commodity contracts are traded for purely financial reasons and not for motives rooted in the real economy. Recently, financialization has been made responsible for causing adverse welfare effects especially for low-income and low-wealth agents, who have to spend a large share of their income for commodity consumption and cannot participate in financial markets. In this paper we study the effect of financial speculation on commodity prices in a heterogeneous agent production economy with an agricultural and an industrial producer, a financial speculator, and a commodity consumer. While access to financial markets is always beneficial for the participating agents, since it allows them to reduce their consumption volatility, it has a decisive effect with respect to overall welfare effects who can trade with whom (but not so much what types of instruments can be traded).
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Suggested Citation

  • Branger, Nicole & Grüning, Patrick & Schlag, Christian, 2016. "Commodities, financialization, and heterogeneous agents," SAFE Working Paper Series 131, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:131
    DOI: 10.2139/ssrn.2759314
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    Cited by:

    1. Christian Koziol & Tilo Treuter, 2019. "How do speculators in agricultural commodity markets impact production decisions and commodity prices? A theoretical analysis," European Financial Management, European Financial Management Association, vol. 25(3), pages 718-743, June.

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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