IDEAS home Printed from https://ideas.repec.org/a/ags/jlaare/31133.html
   My bibliography  Save this article

A Dynamic Analysis Of The Effects Of A Price Support Program On Price Dynamics And Price Volatility

Author

Listed:
  • Kim, Kwansoo
  • Chavas, Jean-Paul

Abstract

This study presents an econometric analysis of the effects of a government price support program on price dynamics and price volatility. Price support programs, a common feature of agricultural policy, provide a lower-bound censoring of the distribution of market prices. An econometric model of market prices is developed using a dynamic Tobit specification under time-varying volatility. The model is applied to the U.S. non-fat dry milk market. It is used to investigate the impact of market liberalization on price dynamics and price volatility in the presence of private and public stocks. The econometric results show how the price support program and stocks (both private and public) affect expected price volatility.

Suggested Citation

  • Kim, Kwansoo & Chavas, Jean-Paul, 2002. "A Dynamic Analysis Of The Effects Of A Price Support Program On Price Dynamics And Price Volatility," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(2), pages 1-20, December.
    • Handle: RePEc:ags:jlaare:31133
    DOI: 10.22004/ag.econ.31133
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/31133/files/27020495.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.31133?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Atanu Saha & C. Richard Shumway & Hovav Talpaz, 1994. "Joint Estimation of Risk Preference Structure and Technology Using Expo-Power Utility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(2), pages 173-184.
    2. Robinson, Peter M, 1982. "On the Asymptotic Properties of Estimators of Models Containing Limited Dependent Variables," Econometrica, Econometric Society, vol. 50(1), pages 27-41, January.
    3. Pesaran, M Hashem & Samiei, Hossein, 1992. "An Analysis of the Determination of Deutsche Mark/French Franc Exchange Rate in a Discrete-Time Target-Zone Model," Economic Journal, Royal Economic Society, vol. 102(411), pages 388-401, March.
    4. Steven Wei, 1999. "A bayesian approach to dynamic tobit models," Econometric Reviews, Taylor & Francis Journals, vol. 18(4), pages 417-439.
    5. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, October.
    6. John M. Antle, 1987. "Econometric Estimation of Producers' Risk Attitudes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 509-522.
    7. Amemiya, Takeshi, 1973. "Regression Analysis when the Dependent Variable is Truncated Normal," Econometrica, Econometric Society, vol. 41(6), pages 997-1016, November.
    8. Binswanger, Hans P, 1981. "Attitudes toward Risk: Theoretical Implications of an Experiment in Rural India," Economic Journal, Royal Economic Society, vol. 91(364), pages 867-890, December.
    9. Holt, Matthew T & Johnson, Stanley R, 1989. "Bounded Price Variation and Rational Expectations in an Endogenous Switching Model of the U.S. Corn Market," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 605-613, November.
    10. William Lin & G. W. Dean & C. V. Moore, 1974. "An Empirical Test of Utility vs. Profit Maximization in Agricultural Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 56(3), pages 497-508.
    11. Robinson, P M & Bera, Anil K & Jarque, Carlos M, 1985. "Tests for Serial Dependence in Limited Dependent Variable Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 629-638, October.
    12. Pesaran, M. Hashem & Samiei, Hossein, 1992. "Estimating limited-dependent rational expectations models with an application to exchange rate determination in a target zone," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 141-163.
    13. Holt, Matthew T., 1994. "Price-Band Stabilization Programs And Risk: An Application To The U.S. Corn Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(2), pages 1-16, December.
    14. Gardner, Bruce L, 1992. "Changing Economic Perspectives on the Farm Problem," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 62-101, March.
    15. Lee, Lung-fei, 1999. "Estimation of dynamic and ARCH Tobit models," Journal of Econometrics, Elsevier, vol. 92(2), pages 355-390, October.
    16. Shonkwiler, J S & Maddala, G S, 1985. "Modeling Expectations of Bounded Prices: An Application to the Market for Corn," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 697-702, November.
    17. Gerald E. Shively, 1996. "Food Price Variability and Economic Reform: An ARCH Approach for Ghana," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 126-136.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. No, Sung Chul & Salassi, Michael E., 2006. "Dynamic Analysis and Forecasts of Rough Rice Price under Government Price Support Program: An Application of Bayesian VAR," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35279, Southern Agricultural Economics Association.
    2. Jingdong Li & Qingning Lin, 2022. "Can the Adjustment of China’s Grain Purchase and Storage Policy Improve Its Green Productivity?," IJERPH, MDPI, vol. 19(10), pages 1-24, May.
    3. Carl GAIGNÉ & Cathie LAROCHE DUPRAZ & Alan MATTHEWS, 2015. "Thirty years of European research on international trade in food and agricultural products," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 96(1), pages 91-130.
    4. Ashutosh K. Tripathi, 2024. "Price support policy and market price dynamics: The case of Indian wheat," Agricultural Economics, International Association of Agricultural Economists, vol. 55(2), pages 412-427, March.
    5. Jian Chen & Xiaohui Tian & Jialing Yu, 2024. "How a price‐support policy can hurt the environment: Empirical evidence from Northeast China," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 72(2), pages 131-148, June.
    6. Gutierrez, L. & Piras, F., 2013. "A Global Wheat Market Model (GLOWMM) for the Analysis of Wheat Export Prices," 2013 Second Congress, June 6-7, 2013, Parma, Italy 149760, Italian Association of Agricultural and Applied Economics (AIEAA).
    7. Du, Xiaodong & Dong, Fengxia, 2014. "Heterogeneous Responses to Market Information and The Impact on Price Volatility and Trading Volume: The Case of Class III Milk Futures," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169769, Agricultural and Applied Economics Association.
    8. Teresa Serra & José M. Gil, 2013. "Price volatility in food markets: can stock building mitigate price fluctuations?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 40(3), pages 507-528, July.
    9. Wu, Feng & Guan, Zhengfei & Suh, Dong Hee, 2017. "The Effects of Tomato Suspension Agreements on Market Price Dynamics," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258224, Agricultural and Applied Economics Association.
    10. Genjin Sun & Yanxiu Liu & Yurong Zhu, 2024. "Target price policy and rural household income: Evidence from China," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 70(5), pages 226-243.
    11. Jingdong Li & Weidong Liu & Zhouying Song, 2020. "Sustainability of the Adjustment Schemes in China’s Grain Price Support Policy—An Empirical Analysis Based on the Partial Equilibrium Model of Wheat," Sustainability, MDPI, vol. 12(16), pages 1-22, August.
    12. Romain Menier & Guillaume Bagnarosa & Alexandre Gohin, 2023. "On the dependence structure of European vegetable oil markets," Post-Print hal-04523660, HAL.
    13. Min Su & Nico Heerink & Peter Oosterveer & Tao Tan & Shuyi Feng, 2021. "Impacts of China’s Minimum Grain Procurement Price Program on Agrochemical Use: A Household-Level Analysis," Agriculture, MDPI, vol. 11(10), pages 1-20, September.
    14. Xiaodong Du & Fengxia Dong, 2016. "Responses to market information and the impact on price volatility and trading volume: the case of Class III milk futures," Empirical Economics, Springer, vol. 50(2), pages 661-678, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jean-Paul Chavas & Kwansoo Kim, 2006. "An econometric analysis of the effects of market liberalization on price dynamics and price volatility," Empirical Economics, Springer, vol. 31(1), pages 65-82, March.
    2. Kim, Kwansoo & Chavas, Jean-Paul, 2001. "The Effects of Stocks and Price Floor on Dynamics and Volatility: An Application to the U.S. Nonfat Dry Milk Market," Working Papers 201570, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    3. Kim, Kwansoo & Chavas, Jean-Paul, 2002. "The Effects of Stocks and Price Floors on Price Dynamics and Volatility: An Application to the U.S. Nonfat Dry Milk Market," Working Papers 201558, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    4. 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.
    5. M. Hashem Pesaran & Francisco J. Ruge-Murcia, 1996. "Limited-dependent rational expectations models with jumps," Discussion Paper / Institute for Empirical Macroeconomics 111, Federal Reserve Bank of Minneapolis.
    6. Kim, Kwansoo & Chavas, Jean-Paul, 2003. "Technological change and risk management: an application to the economics of corn production," Agricultural Economics, Blackwell, vol. 29(2), pages 125-142, October.
    7. Gomez-Limon, Jose Antonio & Riesgo, Laura & Arriaza Balmón, Manuel, 2002. "Agricultural Risk Aversion Revisited: A Multicriteria Decision-Making Approach," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24827, European Association of Agricultural Economists.
    8. Hikaru Hanawa Peterson & William G. Tomek, 2005. "How much of commodity price behavior can a rational expectations storage model explain?," Agricultural Economics, International Association of Agricultural Economists, vol. 33(3), pages 289-303, November.
    9. Mintewab Bezabih & Remidius Ruhinduka & Mare Sarr, 2016. "Climate change perception and system of rice intensification (SRI) impact on dispersion and downside risk: a moment approximation approach," GRI Working Papers 256, Grantham Research Institute on Climate Change and the Environment.
    10. M. Isabel Campos & Zenón Jiménez-Ridruejo, 2000. "Were The Peseta Exchange Rate Crises Forecastable During Target Zone Period?," Working Papers 00-07, Asociación Española de Economía y Finanzas Internacionales.
    11. Francisco J. Ruge-Murcia, 2000. "Uncovering financial markets' beliefs about inflation targets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 483-512.
    12. M. Isabel Campos & Zenon Jimenez-Ridruejo, 2003. "Were the peseta exchange rate crises forecastable during target zone period?," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1087-1099.
    13. Lee, Lung-fei, 1999. "Estimation of dynamic and ARCH Tobit models," Journal of Econometrics, Elsevier, vol. 92(2), pages 355-390, October.
    14. Antoine Magnier, 1992. "Théorie des zones cibles et fonctionnement du SME," Économie et Prévision, Programme National Persée, vol. 104(3), pages 87-113.
    15. M. Isabel Campos & Zenón Jiménez-Ridruejo, "undated". "Were the Peseta Exchange Rate Crises Forecastable During Target Zone Period?," Working Papers on International Economics and Finance 00-07, FEDEA.
    16. Campos, M. Isabel & Herrera, Julio & Jimenez-Ridruejo, Zenon, 1999. "Censured Exchange Rates in a Discrete Time Target Zones Model: The Spanish Peseta/Deutsche Mark Case," ERSA conference papers ersa99pa183, European Regional Science Association.
    17. Z. Bar‐Shira & R.E. Just & D. Zilberman, 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics, International Association of Agricultural Economists, vol. 17(2-3), pages 211-222, December.
    18. Chavas, Jean-Paul & Kim, Kwansoo, 2005. "An Econometric Analysis of Price Dynamics in the Presence of a Price Floor: The Case of American Cheese," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(1), pages 1-15, April.
    19. Pesaran, M. Hashem & Samiei, Hossein, 1995. "Limited-dependent rational expectations models with future expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1325-1353, November.
    20. Ordoñez-Callamand, Daniel & Hernandez-Leal, Juan D. & Villamizar-Villegas, Mauricio, 2018. "When multiple objectives meet multiple instruments: Identifying simultaneous monetary shocks," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 78-101.

    More about this item

    Keywords

    Agricultural and Food Policy;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:jlaare:31133. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/waeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.