The Effects of Stocks and Price Floor on Dynamics and Volatility: An Application to the U.S. Nonfat Dry Milk Market
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This paper presents an econometric analysis of the effects of price support program and
stocks on price dynamics and price volatility. Considering a price support program as a
censoring scheme, market prices are specified as a dynamic Tobit model under time varying
volatility. The model is applied to the U.S. nonfat dry milk market, based on monthly data for
the period of 1970-2000. The econometric results show how the price support program and
stocks (both private and public) affect expected price and price volatility. They document the
role of stocks in reducing price volatility. The results also show the impacts of market
liberalization on price dynamics.