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Monetary Policy Impacts on Cash Crop Coffee and Cocoa Using Structural Vector Error Correction Model

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  • Bamba, Ibrahim
  • Reed, Michael R.

Abstract

Coffee and cocoa are two agricultural commodities produced mainly in developing countries and exported almost entirely to high income industrialized countries. The international market for these products is marked by high price instability. This paper investigates whether monetary policy disturbances contribute to cocoa and coffee price instability. Monthly time series data were collected for five variables including agricultural prices, industrial prices, money supply, exchange rate, and interest rate. A Vector Error Correction model is used to investigate whether cocoa and coffee prices overshoot in response to unanticipated monetary shock. The econometric evidence points toward overshooting of cocoa, arabica coffee and robusta coffee prices in the short-run when money is not neutral. When the assumption of long-run neutrality is imposing the imported commodity price still move more quickly back to their equilibrium level than manufactured good price but their overshooting coefficients are not significant.

Suggested Citation

  • Bamba, Ibrahim & Reed, Michael R., 2004. "Monetary Policy Impacts on Cash Crop Coffee and Cocoa Using Structural Vector Error Correction Model," 2004 Annual meeting, August 1-4, Denver, CO 20056, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea04:20056
    DOI: 10.22004/ag.econ.20056
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    References listed on IDEAS

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    2. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    3. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
    4. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Cited by:

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    2. Gomis-Porqueras Pedro & Rafiq Shuddhasattwa & Yao Wenying, 2023. "The impact of forward guidance and large-scale asset purchase programs on commodity markets," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 27(4), pages 519-551, September.
    3. Abel Mwanyungwe, 2017. "Exchange Rate Volatility and Malawi¡¯s Tobacco Exports to The United Kingdom and The United States," Applied Economics and Finance, Redfame publishing, vol. 4(1), pages 149-168, January.

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