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Monetary Impacts and Overshooting of Agricultural Prices in an Open Economy
Author(s) -
Saghaian Sayed H.,
Reed Michael R.,
Marchant Mary A.
Publication year - 2002
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/1467-8276.00245
Subject(s) - economics , cointegration , error correction model , overshoot (microwave communication) , agriculture , exchange rate , monetary economics , relative price , monetary policy , open economy , neutrality , small open economy , johansen test , macroeconomics , short run , vector autoregression , econometrics , ecology , philosophy , electrical engineering , epistemology , engineering , biology
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.