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Price stabilization using buffer stocks

George Athanasiou (), Iasson Karafyllis and Stelios Kotsios

Journal of Economic Dynamics and Control, 2008, vol. 32, issue 4, 1212-1235

Abstract: The price stabilization problem is stated and solved for a nonlinear cobweb model with government stocks. It is shown that if the storage capacity for the commodity is sufficiently large then there exists a simple stabilization policy, called the 'keep supply at equilibrium (KSE)' policy, such that the equilibrium price is a global attractor for the corresponding closed-loop system. In addition, it is shown that if the government approximates the equilibrium supply with the average supply, stabilization is guaranteed. We refer to this policy as 'keep supply at average (KSA)'.

Date: 2008
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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:4:p:1212-1235