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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," Working Papers 201568, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    • Handle: RePEc:ags:uwfswp:201568
    DOI: 10.22004/ag.econ.201568
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    Cited by:

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    2. 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(1), pages 1-12, April.
    3. Femenia, Fabienne, 2010. "Impacts of Stockholding Behaviour on Agricultural Market Volatility: A Dynamic Computable General Equilibrium Approach," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 59(03), pages 1-15, September.
    4. 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.
    5. 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.
    6. Wauters, Erwin & De Cock, Lieve & Wit, Jan de & Lauwers, Ludwig H., 2011. "The foregone risk premium: a communicative and practical method for the evaluation of risk-return profiles in agriculture," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 115737, European Association of Agricultural Economists.
    7. 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.
    8. 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.
    9. 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).

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    More about this item

    Keywords

    Food Consumption/Nutrition/Food Safety; Research and Development/Tech Change/Emerging Technologies; Research Methods/ Statistical Methods;
    All these keywords.

    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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