Commodity markets, price limiters and speculative price dynamics
We develop a behavioral commodity market model with consumers, producers andheterogeneous speculators to characterize-tile-nature of commodity price fluctuations and toexplore the effectiveness of price stabilization schemes. Within our model, we analyze hownonlinear interactions between market participants can create either bull or bear markets, orirregular price fluctuations between bull and bear markets through a (global) homoclinicbifurcation. Both the imposition ofa bottoming price level (to support producers) or a toppingprice level (to protect consumers) can eliminate such homoclinic bifurcations and hence reducemarket price volatility, However, simple policy rules, such as price limiters, may haveunexpected consequences in a complex environment: a minimum price level decreases theaverage price while a maximum price limit increases the average price. In addition, pricelimiters influence the price dynamics in an intricate way and may cause volatility clustering.
Year of publication: |
2005
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Authors: | Westerhoff Frank ; He Xuezhong |
Publisher: |
Elsevier Science |
Saved in:
freely available
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