Monetary Impacts and Overshooting of Agricultural Prices in an Open Economy

Posted: 1 Jun 2002

See all articles by Sayed H. Saghaian

Sayed H. Saghaian

University of Kentucky

Michael R. Reed

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Mary A. Marchant

University of Kentucky - College of Agriculture - Department of Agricultural Economics

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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.

Suggested Citation

Saghaian, Sayed H. and Reed, Michael R. and Marchant, Mary A., Monetary Impacts and Overshooting of Agricultural Prices in an Open Economy. Available at SSRN: https://ssrn.com/abstract=308793

Sayed H. Saghaian (Contact Author)

University of Kentucky ( email )

Lexington, KY 40546
United States

Michael R. Reed

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

308 Charles E. Barnhart Bldg.
Lexington, KY 40546-0276
United States
859-257-7259 (Phone)
859-323-1913 (Fax)

Mary A. Marchant

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

314 Charles E. Barnhart Bldg.
Lexington, KY 40546-0276
United States
859-257-7260 (Phone)
859-257-7290 (Fax)

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