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The effects of purchasing and price subsidy policies for agricultural products under target zones

Author

Listed:
  • Chen, Li-Ju
  • Hu, Shih-Wen
  • Wang, Vey
  • Wen, Jiandong
  • Ye, Chusheng

Abstract

A good harvest usually leads to a collapse of agricultural prices since the price elasticity of agricultural products is relatively low. To stabilize the market and protect farmers, many countries have introduced a target zone policy, together with product purchasing or price subsidy strategies. This article analyzes the effect of a target zone with different strategies operating in a coordinated manner. The results show that a target zone policy with agricultural product purchases does not necessarily stabilize agricultural product wholesale prices, but is able to stabilize manufacturing product prices, if the price effect is smaller than the sum of the wealth and asset effects for agricultural products and the price effect is larger than the interest rate effect for manufacturing products. On the contrary, a target zone policy with an agricultural product price subsidy will generate the “honeymoon effect” for agricultural product wholesale prices, but will result in unstableperformance of manufacturing product prices.

Suggested Citation

  • Chen, Li-Ju & Hu, Shih-Wen & Wang, Vey & Wen, Jiandong & Ye, Chusheng, 2014. "The effects of purchasing and price subsidy policies for agricultural products under target zones," Economic Modelling, Elsevier, vol. 43(C), pages 439-447.
  • Handle: RePEc:eee:ecmode:v:43:y:2014:i:c:p:439-447
    DOI: 10.1016/j.econmod.2014.09.007
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    References listed on IDEAS

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    More about this item

    Keywords

    Agricultural prices; Buffer fund; Buffer stock; Honeymoon effect; Target zone;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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