Bounded Price Variation and Rational Expectations in Endogenous Switching Model of the U.S. Corn Market | Zendy

Matthew T. Holt | Zendy; Stanley R. Johnson | Zendy

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Bounded Price Variation and Rational Expectations in Endogenous Switching Model of the U.S. Corn Market

Author(s) -

Matthew T. Holt,

Stanley R. Johnson

Publication year - 1989

Publication title -

the review of economics and statistics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 8.999

H-Index - 165

eISSN - 1530-9142

pISSN - 0034-6535

DOI - 10.2307/1928102

Subject(s) - economics , rational expectations , variation (astronomy) , bounded function , econometrics , microeconomics , mathematical economics , mathematics , mathematical analysis , physics , astrophysics

A model that includes bounded price variation and rational expectations by producers is estimated for the U.S. corn market. The resulting model specification is highly nonlinear though since the probability of market equilibrium must be determined endogenously. Unlike previous research, the cross-equation restrictions implied by the rational expectations hypothesis are incorporated in the bounded prices model by using Fair and Taylor's (1983) procedure for obtaining maximum likelihood estimates of nonlinear rational expectations models. The resulting model is compared against a standard equilibrium model with naive expectations. The results show the bounded prices model is a superior specification.

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