An econometric analysis of the effects of market liberalization on price dynamics and price volatility |
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| Authors: | Jean-Paul Chavas Kwansoo Kim |
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| Institution: | (1) Department of Agricultural and Applied Economics, University of Wisconsin, Madison, WI, USA;(2) Department of Agricultural Economics and Rural Development, Seoul National University, Seoul, South Korea |
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| Abstract: | The paper investigates price dynamics under market liberalization, with a focus on the effects of lowering price floors. We
analyze price dynamics by specifying and estimating a dynamic Tobit model under time-varying volatility, where the market
price is censored by a government-set support price. The model is applied to the U.S. butter market over the last three decades.
The econometric results show how the price support program affects both expected prices and the volatility of prices. It is
found that the censoring effects of a price support program can be significant and large even if the price support is set
relatively low.
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| Keywords: | Price dynamics Censored regression Market liberalization Price volatility |
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