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Abstract
The paper investigates price dynamics under market liberalization, with a focus on the
effects of lowering price floors. We analyze price dynamics by specifying and estimating a
dynamic Tobit model under time-varying volatility, where the market price is censored by a
government-set support price. The model is applied to the U.S. butter market over the last
three decades. The econometric results show how the price support program affects both
expected prices and the volatility of prices. It is found that the censoring effects of a price
support program can be significant and large even if the price support is set relatively low.