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A behavioral cobweb-like commodity market model with heterogeneous speculators

  • Westerhoff, Frank
  • Wieland, Cristian

According to empirical studies, speculators place significant orders in commodity markets and may cause bubbles and crashes. This paper develops a cobweb-like commodity market model that takes into account the behavior of technical and fundamental speculators. We show that interactions between consumers, producers and heterogeneous speculators may produce price dynamics which mimics the cyclical price motion of actual commodity markets, i.e., irregular switches between bullish and bearish price developments. Moreover, we find that the impact of speculators on price dynamics is non-trivial: depending on the market structure, speculative transactions may either be beneficial or harmful for market stability.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 5 (September)
Pages: 1136-1143

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:1136-1143
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  18. Deaton, A., 1999. "Commodity Prices and Growth in Aftica," Papers 186, Princeton, Woodrow Wilson School - Development Studies.
  19. C. John McDermott & Paul Cashin & Alasdair Scott, 1999. "Booms and Slumps in World Commodity Prices," IMF Working Papers 99/155, International Monetary Fund.
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