Stabilizing speculative commodity markets

he collapse of the International Tin Agreement in 1985 has led to the view that commodity price intervention is unnecessary and unlikely to succeed. However, as long as third world producers continue to experience difficulties in obtaining adequate credit, there will be a need for some form of international commodity policy, and stabilization schemes will remain candidates. And whether or not such schemes meet with any success depends largely on their design. This is the issue that this book addresses.

After briefly reviewing the problems caused by commodity price instability, the authors develop a framework for modelling and evaluating market stabilization schemes when speculative activity and the uncertainty of future prices are recognized. This involves integrating the theory of intertemporal price determination, given stockholding and forward-looking expectations, with the welfare economics of price stabilization. An empirical model permits the scope and limitations of different intervention rules, and their implications for North-South redistribution, to be assessed. These interventions are then compared to an increased use of the futures markets for efficiency and robustness. The conclusions are particularly pertinent as the recent instability of the oil and currency markets bring market management back to the centre of the policy debate.

Economists interested in commodities, international trade, and developing countries, as well as those professionally involved in com commodity markets, will find this book of value.