Research On The Mechanism Of Chinese Agricultural Prices’ Overshoouting

Agriculture is the base of national economy, and the fluctuation of agricultural prices has a significant impact on the national economy. How to control the agricultural prices is an important issue that related to China’s whole economic situations.Firstly, this paper reviews the history of money supply and agricultural prices; we find that in face of the same monetary shocks, agricultural prices react more rapidly and more intensely than industrial prices in face of the same monetary shocks. Secondly, in the premise of price stickiness, we build an overshooting model to describe the dynamic procedure of agricultural prices’ overshooting feature. Thirdly, combining with the data of China’s money supply and agricultural prices, we set up an econometric analysis to complain the phenomenon of overshooting under the monetary shocks scientifically. Studies show that in the long-run, there is a co-integration between agricultural prices and money supply. If money supply increases 1%, agricultural prices will increase 0.23% and industrial prices will increase 0.11%, so monetary neutrality is not correct in the long-run. While in the short-run, agricultural prices feature the overshooting by responding more intensely than industrial prices in face of the same monetary shock. At the same time, monetary shock only describes 8% of agricultural prices’ vibration, so monetary shock is not the direct factor that increases agricultural prices.In the latter part of the article, taking the two conductive paths from the overshooting model into account, we use DAG to analyze the contemporaneous causality of variables to further investigate agricultural prices’ overshooting mechanism. The conclusion is:In the short run, monetary support will not change too frequently and there’s not enough time for the direct influence from monetary shocks to agricultural prices. So monetary shocks affect agricultural prices through the indirect path via expectations. At that moment, guiding audiences’ expectations reasonably is an effective way to stabilize agricultural prices.We see significances from our conclusion:due to monetary unneutrality in the long-run and agricultural prices’ overshooting in the short-run, on one hand, we can make sufficient monetary policy inclined to agriculture to control the scale of monetary supply appropriately. On the other hand, taking Inflation expectations into account, monetary authorities should supervise the publics’ expectations reasonably and rule the agricultural product market to slow down agricultural prices.