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Abstract

The popularity of price bands adjusted for long run structural changes as market stabilization rules is no doubt due to their apparent virtues of symmetry and simplicity of operation. In fact, the possibility of structural. shifts or long-run trends in prices of storable commodities poses a formidable challenge to the successful operation of such rules. Even if trends or shifts are somehow perfect!y identified, the common prescription of a symmetric price band for stabilizing prices has effects on stocks, producers, and the public budget that are counter-intuitive and not generally recognized, whereas the net effect on the price distribution can be of modest magnitude relative to the managerial challenges presented by the operation of a price band.

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