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The Inefficiency of Interest-Rate Subsidies in Commodity Price Stabilization

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  • Bruce L. Gardner
  • Ramón López

Abstract

Interest-rate subsidies have been used to stimulate commodity stockholding, with the intention of stabilizing prices. However, reductions in price variability can be achieved at less government cost using a direct storage subsidy, and it is possible that an interest-rate subsidy will increase price variability even though the interest subsidy increases mean stocks held. These results are demonstrated using a stochastic dynamic programming model of optimal private storage, with parameter values relevant to agricultural commodity markets, and with particular reference to the U.S. soybean market. Copyright 1996, Oxford University Press.

Suggested Citation

  • Bruce L. Gardner & Ramón López, 1996. "The Inefficiency of Interest-Rate Subsidies in Commodity Price Stabilization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 508-516.
  • Handle: RePEc:oup:ajagec:v:78:y:1996:i:3:p:508-516
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    File URL: http://hdl.handle.net/10.2307/1243269
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    1. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, April.
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    Cited by:

    1. Christophe Gouel, 2012. "Agricultural Price Instability: A Survey Of Competing Explanations And Remedies," Journal of Economic Surveys, Wiley Blackwell, vol. 26(1), pages 129-156, February.
    2. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," World Bank Economic Review, World Bank Group, vol. 29(1), pages 72-101.
    3. Carter, Colin A. & Revoredo-Giha, Cesar, 2000. "The Interaction of Working and Speculative Commodity Stocks," 2000 Annual meeting, July 30-August 2, Tampa, FL 21820, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Cesar Revoredo, 2000. "On The Solution Of The Dynamic Rational Expectations Commodity Storage Model In The Presence Of Stockholding By Speculators And Processors," Computing in Economics and Finance 2000 42, Society for Computational Economics.
    5. Gouel, Christophe, 2013. "Optimal food price stabilisation policy," European Economic Review, Elsevier, vol. 57(C), pages 118-134.
    6. Brennan, Donna C., 2002. "Savings and technology choice for risk averse farmers," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(4), December.
    7. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters,in: The Economics of Food Price Volatility, pages 261-306 National Bureau of Economic Research, Inc.
    8. 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.
    9. Brennan, Donna C., 2003. "Price dynamics in the Bangladesh rice market: implications for public intervention," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 29(1), July.
    10. Jha, Shikha & Srinivasan, P.V., 1999. "Grain price stabilization in India: Evaluation of policy alternatives," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 21(1), August.
    11. Jha, Shikha & Srinivasan, P. V., 1999. "Grain price stabilization in India: Evaluation of policy alternatives," Agricultural Economics, Blackwell, vol. 21(1), pages 93-108, August.
    12. Christophe Gouel, 2013. "Rules versus Discretion in Food Storage Policies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(4), pages 1029-1044.
    13. Myers, Robert J., 2013. "Evaluating the effectiveness of inter-regional trade and storage in Malawi’s private sector maize markets," Food Policy, Elsevier, vol. 41(C), pages 75-84.

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