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Monetary Impacts and Overshooting of Agricultural Prices in a Transition Economy: The Case of Slovenia

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  • Bakucs, Lajos Zoltan
  • Bojnec, Stefan
  • Ferto, Imre

Abstract

The paper focus on the time adjustment paths of the exchange rate and agricultural producer and industrial prices in response to unanticipated monetary shocks following model developed by Saghaian et al. (2002). We employ Johansen's cointegration test along with a vector error correction model to investigate whether agricultural producer prices overshoot in a transition economy. Results indicate that agricultural prices adjust faster than industrial prices to innovations in the money supply, affecting relative prices in the short run, but strict long-run money neutrality does not hold. The impulse response analysis shows that an exogenous shock to the money supply has a significant and volatile effect on the three price variables. Initially, both the agricultural producer prices and industrial prices undershoot their long-run path. Industrial prices recover in the fourth, agricultural producer prices in sixth month. The extent of overshooting in agricultural prices is twice as large as for exchange rates or industrial prices. This indicates that in the case of monetary shocks the sectors associated with flexible changes bear the burden of adjustment vis-à-vis the sectors with sticky changes. The exchange rate pass-through on agricultural producer prices revealed by the forecast error variance analysis indicates the relatively greater importance of the exchange rate than the money supply in explaining the expected variation of the agricultural producer price. This is consistent with floating exchange rate policy, while agricultural trade policy for sensitive products has been more restricted until Slovenia joined the European Union.

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Bibliographic Info

Paper provided by International Association of Agricultural Economists in its series 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia with number 25515.

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Date of creation: 2006
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Handle: RePEc:ags:iaae06:25515

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Keywords: agricultural prices; exchange rates; monetary shocks; overshooting; transition economy; Financial Economics; C32; E51; P22; Q11;

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  1. Orden, David, 1986. "Agriculture, trade, and macroeconomics: The U.S. case," Journal of Policy Modeling, Elsevier, Elsevier, vol. 8(1), pages 27-51.
  2. Bordo, Michael David, 1980. "The Effects of Monetary Change on Relative Commodity Prices and the Role of Long-Term Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(6), pages 1088-1109, December.
  3. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  4. Sayed H. Saghaian & Michael R. Reed & Mary A. Marchant, 2002. "Monetary Impacts and Overshooting of Agricultural Prices in an Open Economy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 84(1), pages 90-103.
  5. Bakucs, Lajos Zoltan & Ferto, Imre, 2005. "Monetary Impacts and Overshooting of Agricultural Prices in a Transition Economy," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24711, European Association of Agricultural Economists.
  6. Shih-wen Hu & Vey Wang, 1996. "Commodity Price Dynamics and Anticipated Shocks," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 78(4), pages 982-990.
  7. Peng, Xuehua & Marchant, Mary A. & Reed, Michael R., 2004. "Identifying Monetary Impacts On Food Prices In China: A Vec Model Approach," 2004 Annual meeting, August 1-4, Denver, CO 20315, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Jeffrey H. Dorfman & William D. Lastrapes, 1996. "The Dynamic Responses of Crop and Livestock Prices to Money-Supply Shocks: A Bayesian Analysis Using Long-Run Identifying Restrictions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 78(3), pages 530-541.
  9. Nedka Ivanova & Philip Dawson & John Lingard, 2003. "Macroeconomic Impacts on Bulgarian Agriculture during Transition," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(7), pages 817-823.
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