Impacts of Inventory Management on Price Volatility in Agricultural Commodity Markets: Insights from a System Dynamics Model
2017
Berg, Ernst
Recent fluctuations of agricultural commodity prices have stimulated the debate on the potential causes of price volatility. One explanation is that weather shocks or other external factors perturb supply, thus leading to price fluctuations. An alternative explanation proposes that the persistent fluctuations are the result of nonlinear dynamics and would even occur in the absence of external shocks. This paper focuses on the latter explanation. We investigate under which conditions price volatility is primarily caused by nonlinear dynamics. Using a system dynamics modelling approach we show that plausible behaviour of actors can lead to persistent price fluctuations, even in the absence of external shocks.
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