Working Paper: CEPR ID: DP740
Authors: Ronald W. Anderson
Abstract: I solve numerically for stationary rational-expectations equilibria of a two-country, non-linear model of a storable commodity. With constant tariffs, price volatilities in both countries increase with an increase in the tariff rate of one country or with an increase in the storage cost in one country. When one country (`the EC') uses a variable import levy and export subsidy to defend a fixed price floor, increases in the floor (a) increase mean price and decrease price volatility in the EC and (b) decrease mean price, increase volatility and increase private stockholding in the rest of the world. The volatility of farm incomes in the EC are relatively insensitive to increases in the floor.
Keywords: Common Agricultural Policy; Stabilization; Storage; Commodities
JEL Codes: F13; O17; O18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EC floor price increases (E64) | mean prices (P22) |
| EC floor price increases (E64) | mean farm incomes (Q12) |
| EC floor price increases (E64) | price volatility (G13) |
| variable import levies and export subsidies (F14) | mean prices (P22) |
| variable import levies and export subsidies (F14) | price volatility (G13) |
| storage costs (L97) | price stabilization (E64) |
| CAP interventions (E22) | market outcomes (P42) |