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The Overshooting Hypothesis of Agricultural Prices: The Role of Asset Substitutability

  • Lai, Ching-Chong
  • Hu, Shih-Wen
  • Fan, Chih-Ping

By allowing for various degrees of asset substitutability between bonds and agricultural products, this paper reexamines the robustness of the overshooting hypothesis of agricultural product prices. It is found, in both a closed economy and an open economy, that the crucial factor determining whether agricultural prices overshoot or undershoot their long-run response following an expansion in the money stock depends upon the extent of asset substitutability between bonds and agricultural goods.

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Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 30 (2005)
Issue (Month): 01 (April)

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Handle: RePEc:ags:jlaare:30784
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  1. Moutos, Thomas & Vines, David, 1992. "Output, Inflation and Commodity Prices," Oxford Economic Papers, Oxford University Press, vol. 44(3), pages 355-72, July.
  2. repec:cdl:agrebk:1131643 is not listed on IDEAS
  3. Stamoulis, Kostas G. & Rausser, Gordon C., 1987. "Overshooting of agricultural prices," CUDARE Working Paper Series 493, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  4. Frankel, Jeffrey A & Hardouvelis, Gikas A, 1985. "Commodity Prices, Money Surprises and Fed Credibility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 425-38, November.
  5. 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.
  6. 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.
  7. 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.
  8. Rausser, Gordon C. & Chalfant, James A. & Love, H. Alan & Stamoulis, Kostas G., 1986. "Macroeconomic linkages, taxes, and subsidies in the U.S. agricultural sector," CUDARE Working Paper Series 393, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  9. Alan G. Isaac & David E. Rapach, 1996. "Monetary Shocks and Real Farm Prices: A Re-Examination," Others 9602001, EconWPA.
  10. 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.
  11. 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.
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