Solution to the multiple region dynamic rational expectations commodity market model
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Modeling international commodity markets is a complicated issue in economics. Contemporary models suggest a variety of strategies to solve for optimal policies. Although they have proved to be efficient in many aspects of theoretical analysis, certain limitations always exist in applications to the real world problems. In this study we developed a multiple region dynamic rational expectation commodity model that is in general more flexible than conventional ones. The essential proposition on separability of solutions for given policy functions was made. A successive approximation algorithm was used to obtain an approximate solution to a model designed. The results support main assumptions of the model. However, the algorithm is characterized by a slow convergence, which limits the results obtained so far.