Monetary impacts and overshooting of agricultural prices in an open economy

Sayed H. Saghaian, Michael R. Reed, Mary A. Marchant

Research output: Contribution to journalArticlepeer-review

43 Scopus citations

Abstract

This article's focus is on the time adjustment paths of the exchange rate and prices in response to unanticipated monetary shocks. First, we expand the theoretical specification of the overshooting hypothesis by generalizing Dornbusch's model to include a third sector (i.e., agricultural prices). Second, we employ Johansen's cointegration test along with a vector error correction model to investigate whether agricultural prices overshoot in an open economy. The empirical 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.

Original languageEnglish
Pages (from-to)90-103
Number of pages14
JournalAmerican Journal of Agricultural Economics
Volume84
Issue number1
DOIs
StatePublished - 2002

Keywords

  • Agricultural prices
  • Exchange rates
  • Flexible prices
  • Monetary shocks
  • Overshooting
  • Sticky prices

ASJC Scopus subject areas

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

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