Money Supply Shock、Inflation Expectation And The Change Of Agricultural Products Price

Since9.11, the major economies implemented long-term low interest rate policyto inject liquidity into financial market. However, the major economies made stimulusplan in order to fight financial crisis in2009. In the meantime, the chinesegovernment decided to spend four trillion supporting the economy development.Meanwhile, despite the fact that the grain output has been increasing in the past7years and reached546,410,000ton in2010, the products prices are still soaring, withthe price of green bean and garlic fluctuating drastically. As necessities of life, theagricultural products are closely related to everyday life, and the price volatility notonly exerts an impact on living standard, but also greatly affect the stability of oursociety. Excess liquidity results from money supply shock and its influence inducesexperts’ contemplation.This dissertation aims at ascertaining whether monetary supply is the drivingforce of agricultural products’ soaring prices or not, and analyses the influence ofinflation expectation on prices. Firstly, this dissertation makes a few alterations ofFrankel’s agricultural products price overshooting model by introducing inflationexpectation into analysis of monetary supply’s influence on price changes. Accordingto current national situation, it is assumed that monetary supply shock is followed byinflation expectation. By dynamic analysis, I discovered that the first-round shockoccurred after monetary supply, then inflation expectation led to the second-roundshock and eventually the price fluctuation of agricultural products. To understand howmonetary shock influenced prices of agricultural products through inflationexpectation channel, this dissertation analyses the intermediate transmissionmechanism of inflation expectation. Secondly, empirical analysis is base on quarterlydata from the1st quarter in2001to2nd quarter in2011and VAR model. By GrangerCausality Test, impulse reponse analysis and variance decomposition, I find that thereare many policy limitations in Chinese agricultural product market. The analysisoutcome shows, the price changes basically meet Frankel’s overshooting model andmoney supply shock contributes most to the volatility, besides, inflation is the maintransmission mechanism between them. In the end, this dissertation puts forwardpolicy suggestion on how to reduce the fluctuation of agricultural products price bycurbing excess liquidity, managing inflation expectation and perfecting agricultrual product market.