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An Econometric Analysis Of The Effects Of Market Liberalization On Price Dynamics And Price Volatility

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  • Chavas, Jean-Paul
  • Kim, Kwansoo

Abstract

The paper investigates price dynamics under market liberalization, with a focus on the effects of lowering price floors. We analyze price dynamics by specifying and estimating a dynamic Tobit model under time-varying volatility, where the market price is censored by a government-set support price. The model is applied to the U.S. butter market over the last three decades. The econometric results show how the price support program affects both expected prices and the volatility of prices. It is found that the censoring effects of a price support program can be significant and large even if the price support is set relatively low.

Suggested Citation

  • Chavas, Jean-Paul & Kim, Kwansoo, 2001. "An Econometric Analysis Of The Effects Of Market Liberalization On Price Dynamics And Price Volatility," 2001 Annual meeting, August 5-8, Chicago, IL 20649, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea01:20649
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    References listed on IDEAS

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    1. 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.
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    4. 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.
    5. Morgan, I G & Trevor, R G, 1999. "Limit Moves as Censored Observations of Equilibrium Futures Price in GARCH Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 397-408, October.
    6. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, April.
    7. 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.
    8. Lee, Lung-fei, 1999. "Estimation of dynamic and ARCH Tobit models," Journal of Econometrics, Elsevier, vol. 92(2), pages 355-390, October.
    9. 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.
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    Cited by:

    1. 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.
    2. van Winsen, Frankwin & Wauters, Erwin & Lauwers, Ludwig H. & de Mey, Yann & Van Passel, Steven & Vancauteren, Mark, 2011. "Combining risk perception and risk attitude: A comprehensive individual risk behavior model," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115749, European Association of Agricultural Economists.
    3. Feil, Jan-Henning & Musshoff, Oliver & Roeren-Wiemers, Tobias, 2014. "Farm level effects of policy reforms in Germany: First empirical evidence," Journal of Policy Modeling, Elsevier, vol. 36(6), pages 1036-1047.
    4. Femenia, Fabienne, 2010. "Impacts of Stockholding Behaviour on Agricultural Market Volatility: A Dynamic Computable General Equilibrium Approach," Journal of International Agricultural Trade and Development, Journal of International Agricultural Trade and Development, vol. 59(3).
    5. Wocken, Meike & Kneib, Thomas, 2012. "Tobit regression to estimate impact of EU market intervention in dairy sector," 123rd Seminar, February 23-24, 2012, Dublin, Ireland 122528, European Association of Agricultural Economists.
    6. Matthias Kalkuhl & Lukas Kornher & Matthias Kalkuhl & Irfan Mujahid, 2015. "Food price volatility in developing countries – the role of trade and storage," EcoMod2015 8415, EcoMod.
    7. McNamara, Kevin T. & Weiss, Christoph R., 2005. "Farm Household Income and On-and-Off Farm Diversification," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(01), April.

    More about this item

    Keywords

    Demand and Price Analysis;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General

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