The Effects of Stocks and Price Floors on Price Dynamics and Volatility: An Application to the U.S. Nonfat Dry Milk Market

Kwansoo Kim and Jean-Paul Chavas ()

No 201558, Working Papers from University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group

Abstract: This paper presents an econometric analysis of the effects of price support programs and stocks on price dynamics and price volatility. Considering a price support program as a censoring mechanism, market prices are specified as a dynamic Tobit model with time varying volatility. The model is applied to the U.S. nonfat dry milk market to examine the impact of market liberalization on price dynamics and price volatility in the presence of private and public stocks. The econometric results show how the price support program and stocks (both private and public) affect expected price and price volatility. They document the role of stocks in reducing price volatility.

Keywords: Food Consumption/Nutrition/Food Safety; Research and Development/Tech Change/Emerging Technologies; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 33
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwfswp:201558

DOI: 10.22004/ag.econ.201558

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