A MULTIMARKET BOUNDED PRICE VARIATION MODEL UNDER RATIONAL-EXPECTATIONS - CORN AND SOYBEANS IN THE UNITED-STATES

The bounded prices model under rational expectations is extended to a multimarket setting. Because the resulting rational expectations model is highly nonlinear, Fair and Taylor's iterative procedure is employed in conjunction with the multimarket framework to obtain maximum likelihood estimates of a supply-demand model for corn and soybeans. The estimated model is then used to simulate the market equilibrium effects associated with removing price support and acreage set-aside programs over the sample period. Among other things, the results reveal that acreage set-asides have dominated the induced supply effects of price support programs for corn.