The Impact Of Monetary Policy On Agricultural Price

In China,monetary policy has significantly impacted its economy,especially the price level which includes agricultural price.The existed studies show that the recent Quantitative Easing policies heavily affect agricultural price in C hina.This study examines the dynamic relationship between monetary policy and agricultural price in the recent years in C hina,and identifies the effect of monetary policy shocks on agricultural price.As an applied research in agricultural economics,the results of this study can test whether the Chinese data support the view of monetary neutrality or overshooting view,and can also offer policy recommendations.This study relies on descriptivestatistics and econometric models to implement the empirical analysis.We obtain time series data from Wind database,which covers from January 2005 to February 2016.We use both money supply and interest rate as monetary policy instruments,which are indicated by the broad definition,M2,and the seven-day interbank weighted bond repo rate,respectively.We use the wholesale price index of agricultural products to denote agricultural price.Specifically:Firstly,we conduct descriptive statistics for money supply,interest rate,and agricultural price to examine their trends of volatility.Secondly,we implement an econometric analysis of Factor-augmented Vector Autoregressive model to study dynamic relationship between monetary policy and agricultural price.Specifically,we study the effect of monetary policy shocks on agricultural price and its persistence via impulse response functions.We study the main force which drives the volatility in agricultural price based on the forecasting error variance decompositions.The Factor-augmented Vector Autoregressive model combines Dynamic Factor model and Vector Autoregressive model to offer robust results by conditioning on a lager informational dataset.The comparisons of different model specifications suggest we can get robust results from a Factor-augmented Vector Autoregressive model with three variables and three factors.We finally draw conclusions as following:Firstly,the results from descriptive statistics show that there is a strong co-movement among money supply,interest rate,and agricultural price.Secondly,results of econometric modelssuggest that monetary shocks from both money supply and interest rate would have considerable effects on agricultural price in the short-run,supporting the overshooting view.However,they have no impact on agricultural price in the long-run,which is consistent with the long-run money neutrality theory.Lastly,results of econometric modelssuggest also indicate that interest rate could contribute more to the volatility in agricultural price than money supply does.