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Linkages among commodity futures markets and dynamic welfare analysis

  • Rausser, Gordon C.
  • Walraven, Nicholas A.

This study constructs dynamic welfare measures for a system of futures markets that express the allocative efficiency of a particular market as a function of its accuracy and speed of adjustment following a shock to the system. The system comprises futures prices for T-bills, exchange rates (German mark, British pound, Canadian dollar and yen), and agricultural commodities (corn, wheat, and cotton) for delivery in 1981 and 1982. The results suggest that, although agricultural, exchange, and financial markets allover-react to a disturbance, agricultural markets do so to a much greater degree. Owing to their much greater size, however, the welfare loss arising from the overshooting is likely to be much larger for interest rate and exchange markets.

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Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt3p3028t6.

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Date of creation: 01 Jul 1990
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Handle: RePEc:cdl:agrebk:qt3p3028t6
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  1. Zellner, Arnold & Palm, Franz, 1974. "Time series analysis and simultaneous equation econometric models," Journal of Econometrics, Elsevier, vol. 2(1), pages 17-54, May.
  2. Gershon Feder & Richard E. Just & Andrew Schmitz, 1980. "Futures Markets and the Theory of the Firm under Price Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 94(2), pages 317-328.
  3. Rausser, Gordon C, 1985. "Macroeconomic environment for U.S. agricultural policy," CUDARE Working Paper Series 373, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  4. Rausser, Gordon C & Carter, Colin, 1983. "Futures Market Efficiency in the Soybean Complex," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 469-78, August.
  5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  6. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  7. Holthausen, Duncan M, 1979. "Hedging and the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 69(5), pages 989-95, December.
  8. Rausser, Gordon C., 1985. "Macroeconomics and U.S. agricultural policy," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9411m70q, Department of Agricultural & Resource Economics, UC Berkeley.
  9. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-22, September.
  10. Rausser, Gordon C. & Chalfant, James A. & Stamoulis, Kostas G., 1985. "Instability in Agricultural Markets: The US Experience," 1985 Conference, August 26-September 4, 1985, Málaga, Spain 182621, International Association of Agricultural Economists.
  11. Stein, Jerome L, 1981. "Speculative Price: Economic Welfare and the Idiot of Chance," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 223-32, May.
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