[The impact of stock market policy announcement on commodity prices and share prices]
AbstractIt has been an important issue to analyze the possible impact of macroeconomic effects, such as: exchange rate or interest rate, on the commodity prices since 1970s because of the tremendous volatility of commodity prices on the US. Thereafter, there are a lot of literature in agricultural economics relative to the empirical study. But the results of these literature are ambiguous. On the other hand, Blandchard (1981) incorporated the stock market into the traditional IS-LM model and discussed the interaction between stock market and economy. The financial sector plays an important role to affect the time path of commodity prices it cannot be ignored since agricultural industry is just one of sector among the whole economy. The main purpose of this article is to add the stock market into the two-goods economy. One is commodity product and the other is nonagricultural product. According the model including commodity market, nonagricultural product market, monetary market and stock market and under the assumptions of perfect substitutes between stock and bond and perfect foresight expectation, the effect of stock market policies, such as financing interest rate, financing ratio, on dynamics of commodity and share prices will be analyzed. The result shows that in the long run the impact of stock policies on commodity prices depends on the relative magnitudes of price effect of commodity and interest rate effect. While in the short run, whether share price overshooting or not it depends on the length of time between announcement and implement of policies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 31178.
Date of creation: Dec 2007
Date of revision:
commodity prices; share prices; financing interest rate; financing ratio; dynamics;
Find related papers by JEL classification:
- Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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, vol. 84(1), pages 90-103.
- Choe, Young Chan & Koo, Won W., 1993. "Monetary Impacts On Prices In The Short And Long Run: Further Results For The United States," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.
- Gavin, Michael, 1989. "The stock market and exchange rate dynamics," Journal of International Money and Finance, Elsevier, vol. 8(2), pages 181-200, June.
- 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, vol. 88(6), pages 1088-1109, December.
- Aoki, Masanao, 1985. "Misadjustment to anticipated shocks: an example of exchange-rate response," Journal of International Money and Finance, Elsevier, vol. 4(3), pages 415-420, September.
- J. S. Taylor & John Spriggs, 1989. "Effects of the Monetary Macro-economy on Canadian Agricultural Prices," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 278-89, May.
- Alan G. Isaac & David E. Rapach, 1997. "Monetary Shocks and Relative Farm Prices: A Re-examination," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1332-1339.
- Michael T. Belongia, 1991. "Monetary policy and the farm/nonfarm price ratio: a comparison of effects," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 30-46.
- Orden, David, 1986. "Money and Agriculture: The Dynamics of Money Financial Market-Agricultural Trade Linkages," Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, issue 3.
- Blanchard, Olivier J, 1983. "Dynamic Effects of a Shift in Savings; The Role of Firms," Econometrica, Econometric Society, vol. 51(5), pages 1583-91, September.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Shih-wen Hu & Vey Wang, 1996. "Commodity Price Dynamics and Anticipated Shocks," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 982-990.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.