Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Überprüfung von Gültigkeit und Annahmen der Friedman These für Rohstoffmärkte
Abstract: The Thesis: Commodity prices are significantly more
volatile than prices of industrial products. Production as well as non
speculative demand of raw materials are subject to stochastic - sometimes
even systematic - fluctuations, which get translated into pronounced price
fluctuations by low short run price elasticities of demand and supply.
Unstable prices as such provide an incentive to speculate; and - so the
Friedman thesis - profitable speculation in itself has a stabilizing
effect, since "speculation can be destabilizing in general only if
speculators on average sell when the currency is low in price and buy when
it is high". Temporal independence between speculative and non speculative
activities is the only necessary condition Friedman considers. The counter
argument: As can be shown however, even under the assumption of temporal
independence speculation can have a destabilizing effect despite being
profitable, if the non speculative excess demand is nonlinear. Moreover its
precisely because of temporal interdependence on commodity markets, that
speculative profits can even be achieved by destabilizing (stable) prices.
The extreme volatility of commodity prices therefore may be partly caused
by (profitable) speculation as well.
Keywords: unstable commodity prices; Friedman thesis; speculation; stabilization; temporal independence; (follow links to similar papers)
JEL-Codes: Q00; (follow links to similar papers)
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