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Federal Reserve Bank of Minneapolis
Economic Policy Paper
The Optimal Extraction of Exhaustible Resources
V. V. Chari
Lawrence J. Christiano

Policymakers concerned about rapid swings in commodity prices seek economic guidance about causal factors and future trends, but standard models—based on Harold Hotelling’s classic 1931 theory—are unable to explain actual data on price variability for a wide range of commodities. In this paper, we review this “Hotelling puzzle” and suggest modifications to current theory that may improve explanations of commodity price changes and provide better policy advice.

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V. V. Chari & Lawrence J. Christiano, The Optimal Extraction of Exhaustible Resources, Federal Reserve Bank of Minneapolis, Economic Policy Paper 14-5, 11 Dec 2014.
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Keywords: Commodities; Prices
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