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Storage and the Volatility of Agricultural Prices: A Model of Endogenous Fluctuations

Author

Listed:
  • Sophie Mitra

    (Fordham University, Department of Economics)

  • Jean-Marc Boussard

    (Institut National de Recherche en Agronomie (INRA))

Abstract

Recent developments in world food markets stress the importance of identifying the sources of food price volatility. This paper develops a nonlinear Cobweb model with endogenous volatility which accounts for several characteristics of agricultural commodity markets (seasonality, storage) and leads to price series with positive skewness and autocorrelation, as in actual commodity prices. Practical consequences may imply a rethinking of the current methods of world food market regulation.

Suggested Citation

  • Sophie Mitra & Jean-Marc Boussard, 2008. "Storage and the Volatility of Agricultural Prices: A Model of Endogenous Fluctuations," Fordham Economics Discussion Paper Series dp2008-11, Fordham University, Department of Economics.
  • Handle: RePEc:frd:wpaper:dp2008-11
    as

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    File URL: http://ftp.web.fordham.edu/ECONOMICS_RESEARCH/PAPERS/dp2008_11_mitra_boussard.pdf
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    References listed on IDEAS

    as
    1. Angus Deaton & Guy Laroque, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Oxford University Press, pages 1-23.
    2. Hommes, Cars H., 1998. "On the consistency of backward-looking expectations: The case of the cobweb," Journal of Economic Behavior & Organization, Elsevier, vol. 33(3-4), pages 333-362, January.
    3. William Brock & Pietro Dindo & Cars Hommes, 2006. "Adaptive rational equilibrium with forward looking agents," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3-4), pages 241-278.
    4. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
    5. Martin Ravallion, 1997. "Famines and Economics," Journal of Economic Literature, American Economic Association, pages 1205-1242.
    6. Martin Ravallion, 1997. "Famines and Economics," Journal of Economic Literature, American Economic Association, pages 1205-1242.
    7. Jean-Marc Boussard, 2005. "Price risk management instruments in agricultural and other unstable markets," Risk and Insurance 0505001, EconWPA.
    8. Howroyd, T. D. & Russell, A. M., 1984. "Cournot oligopoly models with time delays," Journal of Mathematical Economics, Elsevier, vol. 13(2), pages 97-103, October.
    9. Robert W. Fogel, 1989. "Second Thoughts on the European Escape from Hunger: Famines, Price Elasticities, Entitlements, Chronic Malnutrition, and Mortality Rates," NBER Historical Working Papers 0001, National Bureau of Economic Research, Inc.
    10. Mackey, Michael C., 1989. "Commodity price fluctuations: Price dependent delays and nonlinearities as explanatory factors," Journal of Economic Theory, Elsevier, vol. 48(2), pages 497-509, August.
    11. Boussard, Jean-Marc, 1996. "When risk generates chaos," Journal of Economic Behavior & Organization, Elsevier, vol. 29(3), pages 433-446, May.
    12. Hommes, Cars & van Eekelen, Arno, 1996. "Partial equilibrium analysis in a noisy chaotic market," Economics Letters, Elsevier, vol. 53(3), pages 275-282, December.
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    Cited by:

    1. Thomas Barré, 2011. "Price expectations and price dynamics: the case of the rice sector in developing Asia," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00630711, HAL.

    More about this item

    Keywords

    Agricultural prices; nonlinear Cobweb model; endogenous fluctuations; storage;

    JEL classification:

    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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