The Effect of a Target Zone on the Stabilization of Agricultural Prices and Farmers' Nominal Income

A good harvest usually leads to a collapse in agricultural prices and farmers' nominal income. To stabilize the market, many countries introduce a target-zone policy, together with product purchase or price subsidy strategies. This paper analyzes the effect of a target zone with different strategies operated in coordination. We find that the target zone in conjunction with the government's purchasing policy can stabilize the agricultural product wholesale price and farmers' nominal income when there is a disturbance in the agricultural market. However, this is not the case if there is a target zone along with a price subsidy policy.