On Speculation and Price Stability under Uncertainty

In previous studies that use mathematical models to investigate the impact of speculative activity on commodity prices, it was assumed that speculators know both current and future nonspeculative excess demand functions. The model used here describes a commodity market with both speculative and nonspeculative activities. An analytical framework provided by Telser, Kemp, Farrell, and Schimmler is extended in order to introduce uncertain future nonspeculative excess demand. A comparison of these results with those of the aforementioned studies reveals that, assuming linearity of the nonspeculators' excess demand curve, the results obtained in the prior studies continue to hold when the speculators are no longer assumed to know the nonspeculators' future excess demand function.