Butter Mountains, Milk Lakes and Optimal Price Limiters
It is known that simple price limiters may have unexpected consequences in irregular commodity price fluctuations between bull and bear markets and complicated impacts on the size of buffer stocks. In particular, imposing a lower price boundary may lead to a huge buffer stock, e.g. to a ?butter mountain? or a ?milk lake? and this is a real problem for regulators since storage costs may become impossible to finance over time. The relation between price limiters and the size of buffer stocks is nontrivial and there may exist some optimal price limiters which require only weak market interventions and thus provide a rather inexpensive option to regulate commodity markets. In this paper, we use a simple commodity market model to explore the relation between price limiters and the average growth rate of the buffer stocks. It is found that these optimal price limiter levels are simply the minimum values of unstable periodic orbits of the underlying deterministic system.
|Date of creation:||01 May 2005|
|Publication status:||Published as: Corron, N., He, X. and Westerhoff, F., 2007, "Butter Mountains, Milk Lakes and Optimal Price Limiters", Applied Economics Letters, 14(15), 1131-1136.|
|Contact details of provider:|| Postal: PO Box 123, Broadway, NSW 2007, Australia|
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.qfrc.uts.edu.au/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
- J. Doyne Farmer & Shareen Joshi, 2000.
"The price dynamics of common trading strategies,"
- Day, Richard H. & Huang, Weihong, 1990.
"Bulls, bears and market sheep,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 14(3), pages 299-329, December.
- He, Xue-Zhong & Westerhoff, Frank H., 2005.
"Commodity markets, price limiters and speculative price dynamics,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 29(9), pages 1577-1596, September.
- Xue-Zhong He & Frank H. Westerhoff, 2004. "Commodity Markets, Price Limiters and Speculative Price Dynamics," Research Paper Series 136, Quantitative Finance Research Centre, University of Technology, Sydney.
- Lux, T. & M. Marchesi, "undated". "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
- Brock, W.A. & Hommes, C.H., 1996.
"A Rational Route to Randomness,"
9530r, Wisconsin Madison - Social Systems.
When requesting a correction, please mention this item's handle: RePEc:uts:rpaper:158. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford)
If references are entirely missing, you can add them using this form.