Emergency reserves, private storage, or trade? How to prevent extreme grain prices in a two country setting
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A broad set of trade, private storage, and public reserve related policies to stabilize food prices are analyzed in a two country model with private stockholders and producers featuring rational expectations. Major findings include that trade is a highly efficient and cost free stabilization mechanism. Even if subsidized, private storage hardly manages to avoid extreme price spikes although it is very efficient in reducing the expected volatility in normal times. In contrast, a public emergency reserve can be very useful in compensating large supply shortages at a reasonable level of fiscal costs with minimal side effects.