Commodities, Financialization, and Heterogeneous Agents
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Date
2016-04-28
Author
Branger, Nicole
Grüning, Patrick
Schlag, Christian
SAFE No.
131
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Abstract
The term 'financialization' describes the phenomenon that commodity contracts are traded for purely financial reasons and not for motives rooted in the real economy. Recently, financialization has been made responsible for causing adverse welfare effects especially for low-income and low-wealth agents, who have to spend a large share of their income for commodity consumption and cannot participate in financial markets. In this paper we study the effect of financial speculation on commodity prices in a heterogeneous agent production economy with an agricultural and an industrial producer, a financial speculator, and a commodity consumer. While access to financial markets is always beneficial for the participating agents, since it allows them to reduce their consumption volatility, it has a decisive effect with respect to overall welfare effects who can trade with whom (but not so much what types of instruments can be traded).
Research Area
Financial Markets
Keywords
commodities, general equilibrium, heterogeneous preferences, financial markets
JEL Classification
E23, G12, G13, Q11, I30
Topic
Fiscal Stability
Macro Finance
Consumption
Macro Finance
Consumption
Relations
1
Publication Type
Working Paper
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- LIF-SAFE Working Papers [334]