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Rice price flexibility coefficients are used as a very useful tool to forecast rice price. However, changes in the price would be underestimated if the estimated coefficient in previous literature is used to forecast the rice price when there is not government intervention in the rice market. The estimated coefficient from previous literature does not consider the role of government in stabilizing the rice price using public stockholdings. The rice price stabilization policy increases demand elasticity (or decreased the coefficient of price flexibility). In this study we estimate the coefficient of price flexibility, considering the role of price stabilization policy. We find that the coefficient is 4.42, an increase from the estimates of the previous literature of 0.13 and 1.44. Therefore, we recommend that the Korean government accumulate excess production from years of good harvest to prevent a rapid fall in rice price. We also recommend that structural long-run oversupply should be adjusted by changes in rice price. |
