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Competitive Storage, Rational Expectations, and Short‐Run Food Price Determination
Author(s) -
Wohlgenant Michael K.
Publication year - 1985
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1241813
Subject(s) - markup language , rational expectations , econometrics , economics , wholesale price index , microeconomics , variable (mathematics) , process (computing) , price level , mid price , computer science , monetary economics , mathematics , mathematical analysis , xml , operating system
This paper demonstrates that lags between retail and wholesale food prices can be explained by inventory behavior of retailers. Theoretical considerations indicate that the markup model should be modified to include a Jorgenson‐type user cost variable, which depends on expected future wholesale price. The rational expectations hypothesis is used to derive price expectations. The retail price specification, therefore, depends on the stochastic process generating expected wholesale price. The econometric methodology, employing both causality testing and nonlinear estimation, is illustrated by estimating monthly price relationships for beef. The results are consistent with the theory and indicate rejection of the markup model.