Economic Dynamics of the German Hog-Price Cycle

Ernst Berg, Ray Huffaker

Abstract


We investigated the economic dynamics of the German hog-price cycle with an innovative ‘diagnostic’ modeling approach. Hog-price cycles are conventionally modeled stochastically—most recently as randomly-shifting sinusoidal oscillations. Alternatively, we applied Nonlinear Time Series analysis to empirically reconstruct a deterministic, low-dimensional, and nonlinear attractor from observed hog prices. We next formulated a structural (explanatory) model of the pork industry to synthesize the empirical hog-price attractor. Model simulations demonstrate that low price-elasticity of demand contributes to aperiodic price cycling – a well know result – and further reveal two other important driving factors: investment irreversibility (caused by high specificity of technology), and liquidity-driven investment behavior of German farmers.

Keywords


Hog cycle; nonlinear dynamics; chaos; phase space reconstruction

Full Text:

PDF


DOI: https://doi.org/10.18461/ijfsd.v6i2.621

ISSN 1869-6945

 

This work is licensed under a Creative Commons License