Storage, transport and the law of one price: evidence from nineteenth century U.S. corn markets.

This paper argues that localised price spikes should be a regular feature of competitive commodity markets. It develops a rational expectations model of physical arbitrage in which trade takes time, and shows that inventory management plays a crucial role in the way regional prices are determined. In equilibrium, arbitrageurs choose export quantities to ensure inventories in the importing centre regularly fall to zero. They earn enough profits from high prices on these occasions to offset small losses at other times. An analysis of detailed data from Chicago and New York corn markets provides empirical support for the model.


Issue Date:
2005-03
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/208149
Total Pages:
24




 Record created 2017-04-01, last modified 2017-08-28

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