Hostname: page-component-78c5997874-ndw9j Total loading time: 0 Render date: 2024-11-03T04:55:09.271Z Has data issue: false hasContentIssue false

An Econometric Analysis of Price Dynamics in the Presence of a Price Floor: The Case of American Cheese

Published online by Cambridge University Press:  28 April 2005

Jean-Paul Chavas
Affiliation:
Department of Agricultural and Applied Economics, University of Wisconsin, Madison, WI
Kwansoo Kim
Affiliation:
Department of Agricultural and Life Sciences, Seoul National University, Seoul, Korea

Abstract

In this paper, we present an econometric analysis of the effects of a price floor on price dynamics and price volatility. A price floor (implemented as a part of government pricing policy) provides a censoring mechanism for price determination. We specify and estimate a dynamic Tobit model under time-varying volatility. The model is applied to analyze the effects of a price support program on price dynamics and price volatility in the U.S. American cheese market. The econometric analysis provides useful insights on price dynamics in the presence of a government-determined price floor.

Type
Articles
Copyright
Copyright © Southern Agricultural Economics Association 2005

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Amemiya, T.Regression Analysis when the Dependent Variable is Truncated Normal.Econometrica 41(1973):9771016.Google Scholar
Amemiya, T., and Boskin, M.. “Regression Analysis when the Dependent Variable is Truncated Lognormal, with an Application to the Determinants of the Duration of Welfare Dependency.International Economic Review 15(1974): 485–96.10.2307/2525873Google Scholar
Deaton, A., and Laroque, G.. “On the Behavior of Commodity Prices.The Review of Economic Studies 59(1992): 123.10.2307/2297923Google Scholar
Deaton, A., and Laroque, G.. “Competitive Storage and Commodity Price Dynamics.The Journal of Political Economy 101(1996):896923.Google Scholar
Engle, R.F., Lilien, D.M., and Robins, R.P.. “Estimating Time-Varying Risk Premia in the Term Structure: The ARCH-M Model.Econometrica 55(1987):391407.10.2307/1913242Google Scholar
Holt, M.T., and Johnson, S.R.. “Bounded Price Variation and Rational Expectations in an Endogenous Switching Model of the US Corn Market.Review of Economics and Statistics 71(1989):605–13.10.2307/1928102Google Scholar
Huang, K.S.A Complete System of U.S. Demand for Food.” USDA, ERS Technical Bulletin 1821. Washington, DC, September 1993.Google Scholar
Judge, G.G., Griffiths, W.E., Carter-Hill, R., and Lee, T.C.. The Theory and Practice of Econometrics. New York: John Wiley and Sons, 1980.Google Scholar
Lee, L.-F.Estimation of Dynamic and ARCH To-bit Models.Journal of Econometrics 92(1999): 355–90.10.1016/S0304-4076(98)00095-5Google Scholar
Maddala, G.S. Limited Dependent and Qualitative Variables in Econometrics. New York: Cambridge University Press, 1987.Google Scholar
Morgan, I.G., and Trevor, R.G.. “Limit Moves as Censored Observations of Equilibrium Futures Prices in GARCH Processes.Journal of Business and Economic Statistics 17(1999):397408.Google Scholar
Ng, S.Looking for Evidence of Speculative Stockholding in Commodity Markets.Journal of Economics Dynamics and Control 20(1996): 1123–43.Google Scholar
Pesaran, M.H., and Samiei, H.. “An Analysis of the Determination of Deutsche Mark/French Franc Exchange Rate in a Discrete-Time Target Zone.The Economic Journal 102(1992a):388401.10.2307/2234523Google Scholar
Pesaran, M.H., and Samiei, H.. “Estimating Limited-Dependent Rational Expectations Models with an Application to Exchange Rate Determination in a Target Zone.Journal of Econometrics 53(1992b): 141–63.10.1016/0304-4076(92)90083-4Google Scholar
Shonkwiler, J.S., and Maddala, G.S.. “Modeling Expectations of Bounded Prices: An Application to the Market for Corn.Review of Economics and Statistics 67(1985):634–41.Google Scholar
Tobin, J.Estimating Relationships for Limited Dependent Variables.Econometrica 26(1958): 2436.10.2307/1907382Google Scholar
USDA. Dairy Market News. Agricultural Marketing Service, Washington, DC, various issues.Google Scholar
Vuong, Q.H.Likelihood Ratio Tests for Model Selection and Non-Nested Hypothesis.Econometrica 57(1989):307–33.10.2307/1912557Google Scholar
Wei, S.X.A Bayesian Approach to Dynamic Tobit Models.Econometric Review 18(1999):417–39.10.1080/07474939908800353Google Scholar
Wei, S.X.A Censored-GARCH Model of Asset Returns with Price Limits.Journal of Empirical Finance 9(2002): 197223.10.1016/S0927-5398(01)00051-2Google Scholar
Williams, J.C., and Wright, B.D.. Storage and Commodity Markets. New York: Cambridge University Press, 1991.Google Scholar
Zeger, S.L., and Brookmeyer, R.. “Regression Analysis with Censored Autocorrelated Data.Journal of the American Statistical Association 81(1986):722–29.Google Scholar
Zellner, A., and Palm, F.. “Time Series Analysis and Simultaneous Equation Econometric Models.Journal of Econometrics 2(1974): 1754.10.1016/0304-4076(74)90028-1Google Scholar