Monetary Impacts and Overshooting of Agricultural Prices in a Transition Economy: The Case of Slovenia
AbstractThe 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 InfoPaper provided by International Association of Agricultural Economists in its series 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia with number 25515.
Date of creation: 2006
Date of revision:
agricultural prices; exchange rates; monetary shocks; overshooting; transition economy; Financial Economics; C32; E51; P22; Q11;
Other versions of this item:
- Bakucs, Lajos Zoltan & Bojnec, Stefan & Ferto, Imre, 2007. "Monetary Impacts and Overshooting of Agricultural Prices in a Transition Economy: The Case of Slovenia," 103rd Seminar, April 23-25, 2007, Barcelona, Spain 9422, European Association of Agricultural Economists.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- P22 - Economic Systems - - Socialist Systems and Transition Economies - - - Prices
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
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