Market Intervention and International Price Stability

A simple model is used to analyze the impact of domestic policies on international price stability. The impact of policies on the variance of world prices depends on the type of measures used, policy parameters, and whether instruments are used singly or in combination. Domestic agricultural policies are normally assumed to destabilize world prices. The model demonstrates that this may not occur, particularly when multiple interventions are used. Currently there is considerable emphasis on the reduction of protection. How this is achieved may have important implications for the stability of international prices as well as their average level.