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Macro Effects on Agricultural Prices in Different Time Horizons
Abstract
Using monthly data covering 1974:1 to 2002:12, this paper explores the linkage between changes in macroeconomic variables (real exchange rate and inflation rate) and changes in relative agricultural prices in different time horizons (1, 12, 24, 36, 48, and 60 months). By controlling factors that determine the long-run trend of relative agricultural prices, the results show that long-term changes in real exchange rates have had a significant negative correlation with the long-term changes in relative agricultural prices. Conversely, changes in the general price significantly affect short-term changes in the relative agricultural price.
... Hyder and Shah (2005) found a moderate effect of exchange rate variation on domestic pricing. Whereas, Koo et al. (2005) discovered a negative long-term association between exchange rates and agricultural prices. Similarly, Mushtaq et al. (2011) found the negative long-run association between the exchange rate and white price in Pakistan. ...
... As a result, the increased expense �0.019 ** 0.009 0.044 Note(s): *, ** and *** indicate significance at the 1, 5 and 10% level, respectively Source(s): Authors' calculations of imported goods filters through to the domestic market, exerting downwards pressure on food prices. Our findings are in line with previous studies conducted by Koo et al. (2005), Mushtaq et al. (2011), Samal et al. (2022 and Mishra (2022), all of which support the notion of exchange rate depreciation leading to lower food price inflation. However, our results diverge from the conclusions drawn by Reboredo and Ugando (2014), Awokuse (2005), Baek and Koo (2010) and Kargbo (2005), which suggest alternative or contradictory relationships between exchange rates and food price dynamics. ...
Purpose-The purpose of this paper is to investigate how the rising domestic food price inflation in India is influenced by global macroeconomic factors like crude oil, exchange rate, foreign aid, global food prices and trade openness from January 1993 to December 2022. Design/methodology/approach-The study has employed the structural break, autoregressive distributed lag cointegration tests to assess the stationarity and long-term relationship between the variables and the Toda-Yamamoto Granger causality test to demonstrate the causal relationship between the variables. Findings-The study highlights the long-term relationships among variables, shedding light on the influence of global macroeconomic factors on domestic food price inflation in India. It reveals that food price inflation in India is positively influenced by crude oil prices and global food prices while being negatively affected by currency rates, foreign direct investment and trade openness. Originality/value-Based on the findings, the study suggests that initiatives to reduce demand for crude oil and imported food products could help mitigate domestic food price inflation in India. Addressing the depreciation of the exchange rate is crucial to combat significant inflation in domestic food prices, calling for specific government interventions. Furthermore, promoting trade liberalization and foreign direct investment in the agricultural sector could help alleviate domestic food price inflation, emphasizing the importance of reducing customary trade barriers to encourage investment and trade openness.
... The import of these machineries from abroad increases the cost of production of food processing companies, ultimately resulting in a rise in the price level of food items. This result is consistent with Iddrisu and Alagidede (2020) for South Africa and inconsistent with Cho, Kim and Koo (2005) and Sasmal (2015). ...
This study examines the role of monetary policy shocks on food inflation in India, spanning from January 2009 to December 2019. Utilising quantile regression analysis, we find that contractionary monetary policy stabilises food inflation across the quantiles. However, exchange rate and transportation cost play a substantial role in promoting food inflation in lower, middle and all quantiles. Our study also reveals that monetary policy transmission through exchange rate and asset price channels increases food inflation across all quantiles. In contrast, bank credit and interest rate channels reduce it in lower and median quantiles, that is, at lower rates of inflation.
This paper presents support for long-run monetary neutrality based on evidence that individual time series for money, manufacturing
prices, and agricultural prices are nonstationary but cointegrated, with a stationary proportional long-run relationship among
their levels. Dynamic simulations from a vector error-correction model with this restriction imposed show that monetary shocks
shift relative prices in favor of agriculture in the short run and permanently raise nominal prices. Manufacturing price shocks
have similar long-run effects but initially place agriculture in a cost-price squeeze, while agricultural price shocks are
transitory and have little impact on the other series.
Using a Bertrand differentiated products model we show that pass-through should be high for exporters based in a country with a very large share of total destination market sales. For source countries with small and intermediate market shares, the relationship is potentially nonlinear and sensitive to assumptions about demand and firm interactions. The model is estimated using a panel data set of automobile exports from four source countries to 12 destination markets over the period 1970–1988. The relationship between pass-through and market share is significantly nonlinear: pass-through is lowest when the source country's market share is around 40 percent and highest when market share approaches 100 percent.
This study examines the long-run neutrality of money and the short-run dynamics of farm and nonfarm prices to the monetary shock, using Johansen'Â’s approach. Results find a long-run equality of prices, but not neutrality. In the short-run, farm prices adjust faster than nonfarm prices to a monetary shock.
Empirical results support the hypothesis that agricultural prices respond faster than manufactured product prices to a change
in money supply in the United States. Sims' vector autoregression (VAR) technique was applied in examining this hypothesis.
The monte-carlo integration method was used to test the significance of the impulse responses generated by the VAR technique.
U.S. agriculture is a spectacular success story of high productivity growth maintained over an amazingly long period of time. Nevertheless, the industry today suffers from the same problems it has always suffered from: droughts, locusts and market disruptions. In this article, Kevin Kliesen and William Poole explain how monetary policy can contribute to a healthy agriculture sector. The reality is that the fundamental economic forces controlling the destiny of agriculture-high productivity growth, the hazards of nature, the low price and income elasticities of demand, and the instability of conditions in important export markets-are things that the Fed can do nothing about. The main message is that the best the Fed can do to stabilize the agricultural sector is to maintain low and steady inflation.
Regressions of multiple-period changes in the log exchange rate on the deviation of the log exchange rate from its 'fundamental value' display evidence that long-horizon changes in log nominal exchange rates contain an economically significant predictable component. To account for small-sample bias and size distortion in asymptotic tests, inference is drawn from bootstrap distributions generated under the null hypothesis that the log exchange rate is unpredictable. The bias-adjusted slope coefficients and R[superscript]2's increase with the forecast horizon, and the out-of-sample point predictions generally outperform the driftless random walk at the longer horizons. Copyright 1995 by American Economic Association.
Monetary policy has important effects on agricultural commodity prices because, though they are flexible, other goods prices are sticky. This paper formalizes the argument by applying the Dornbusch overshooting model. A decline in the nominal money supply is a decline in the real money supply in the short run. It raises the real interest rate, which depresses real commodity prices. They overshoot their new equilibrium in order to generate an expectation of future appreciation sufficient to offset the higher interest rate. These real effects (which vanish in the long run) also result from a decline in the money growth rate.
Recently, methods for detecting unit roots in autoregressive and autoregressive-moving average time series have been proposed. The presence of a unit root indicates that the time series is not stationary but that differencing will reduce it to stationarity. The tests proposed to date require specification of the number of autoregressive and moving average coefficients in the model. In this paper we develop a test for unit roots which is based on an approximation of an autoregressive-moving average model by an autoregression. The test statistic is standard output from most regression programs and has a limit distribution whose percentiles have been tabulated. An example is provided.
Applying a Neo‐Keynesian approach, this study investigates whether in the short run flexible commodity prices overshoot their long‐run equilibrium whenever there is a monetary change. Two differential equations are generated depicting the adjustment paths for commodity prices and prices of manufactures. With a modified arbitrage condition that incorporates convenience yield, flexible commodity prices are shown to overshoot their long‐run equilibrium when compared with less‐flexible prices of manufactured goods. Simulation results support the breakdown of money neutrality in the short run. Inflation rate and degree of rigidity of prices of manufactures are shown to have a significant effect on the adjustment paths. Convenience yield did not influence the adjustment mechanism.
In this paper, we estimate the (long-run) intertemporal elasticity of substitution of non-durable consumption, which has often been estimated with the generalized methods of moments (GMM). The GMM estimator, however, is not consistent in the presence of liquidity constraints, aggregation over heterogeneous consumers, unknown preference shocks, or a general form of time-nonseparability. We use Engle and Granger's cointegration methodology in order to develop an estimator which is consistent even in the presence of these factors. We then form a formal test that compares the estimates obtained using cointegration techniques with those obtained using GMM.
We consider a nonstationary vector autoregressive process which is integrated of order 1, and generated by i.i.d. Gaussian errors. We then derive the maximum likelihood estimator of the space of cointegration vectors and the likelihood ratio test of the hypothesis that it has a given number of dimensions. Further we test linear hypotheses about the cointegration vectors.The asymptotic distribution of these test statistics are found and the first is described by a natural multivariate version of the usual test for unit root in an autoregressive process, and the other is a χ2 test.
The paper considers the effect of inflation on the relative prices of products traded in auction markets. Prices of US agricultural products are used for the period 1951–1981. Since agricultural products are widely traded, the real forces of supply and demand specific to agriculture are represented by foreign agricultural prices. The exchange rate is entered as a separate variable influencing domestic agricultural prices. Trade between the USA and the ten countries included in the Federal Reserve Board's trade-weighted dollar is considered. The empirical results are consistent with the hypothesis that inflation did not alter relative agricultural prices, when the real forces of supply and demand and the exchange rate are held constant.
Two people, 1 and 2, are said to have common knowledge of an event E if both know it, 1 knows that 2 knows it, 2 knows that 1 knows is, 1 knows that 2 knows that 1 knows it, and so on. THEOREM. If two people have the same priors, and their posteriors for an event A are common knowledge, then these posteriors are equal.
The paper develops a natural measure of the amount of relative price variability. The variance of relative price change is shown to be correlated with the rate of change in the price level using data for consumer goods in both the Netherlands and the United States. This association has been noted in other data for a variety of countries. Using a multisectoral supply-and-demand framework, the paper goes on to show how changes in relative prices and ultimately the variance of relative price changes are related to supply conditions changes in real income and the amount of unanticipated inflation. The model is used as the basis for an analysis of movements in the prices of consumer goods in the United States for the period 1929-75. The amount of unanticipated inflation (measured as the difference between the actual rate and a time-series predictor) is a more important determinant of relative price variability than the rate of inflation.
The authors test whether the time-series positive correlation of inflation and intermarket relative price variability is also present in a cross section of U.S. cities. They find this correlation to be a robust empirical regularity: cities that have higher than average inflation also have higher than average relative price dispersion, ceteris paribus. This result holds for different periods of time, for different classes of goods, and across different time horizons. The authors' results suggest that at least part of the relationship between inflation and relative price variability cannot be explained by monetary factors. Copyright 1997 by the University of Chicago.
This paper analyzes the effects of inflation on the dispersion of prices, and other aspects of price behavior, using disaggregated data on prices of foodstuffs in Israel during 1978-84. The authors find that expected inflation has a stronger effect on intramarket price variability than unexpected inflation. They show that even in times of high inflation price quotations are not trivially short and that price changes are not synchronized across firms. These facts, taken together, confirm that there is some staggering in the setting of prices. The authors find that the distribution of real prices is not uniform as many menu cost-based models assume or conclude. Copyright 1992 by University of Chicago Press.
This paper proposes a theory of supply shocks, or shifts in the short-run Phillips curve, based on relative-price changes
and frictions in nominal price adjustment. When price adjustment is costly, firms adjust to large shocks but not to small
shocks, and so large shocks have disproportionate effects on the price level. Therefore, aggregate inflation depends on the
distribution of relative-price changes: inflation rises when the distribution is skewed to the right, and falls when the distribution
is skewed to the left. We show that this theoretical result explains a large fraction of movements in postwar U. S. inflation.
Moreover, our model suggests measures of supply shocks that perform better than traditional measures, such as the relative
prices of food and energy.
This study divides the U.S. economy into the agricultural and industrial sectors and compares the degree of involvement of exchange rates in each sector without specifying the rigid assumption of either exogeneity or endogeneity of exchange rates. Both short- and long-run impacts of shocks in the exchange rate are found to be significant. However, the effect of an exchange rate shock on the agricultural sector is larger than that on the industrial sector. This study examines a fundamental question about the role of the exchange rate in the two sectors. The exchange rate is exogenous in the agricultural sector, while being endogenous in the industrial sector.
This paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using U.S., U.K., German and Japanese industry-level data. Given the industries sampled more price discrimination across destinations is observed in the U.K., German and Japanese data. For industries that match across source countries, however, behavior is very similar across source countries. Furthermore, destination-specific price adjustment on exports to the U.S. from Germany and Japan is similar to price adjustment observed on shipments to other destinations. Most variation in the data appears to be related to industry.
When the automobile was developed near the beginning of the last century, it was the relatively new fuel gasoline, not the familiar ethanol that became the fuel of choice. We examine the intersections of the early development of the automobile and the petroleum industry and consider the state of the agriculture sector during the same period. Through this process, we find a series of influences, such as relative prices and alternative markets, that help to explain how in the early years of automobile development, gasoline won out over the equally likely technical alternative ethanol. We also examine the industrial relations in the automobile industry that seem to have influenced the later adoption of leaded gasoline, rather than ethanol, as a solution to the problem of engine knock.
The authors show that Richard W. Parks' (1978) widely cited evidence on the correlation between the rate of inflation and the variability of relative prices in the United States during 1948-75 depends on one observation, 1974. When the sample period is extended through 1989, the correlation depends on the observations for 1974 and 1980. Since both are years of large oil price shocks, the authors make the case that causation is likely to run from these shocks to relative price variability and inflation with accommodating monetary policy playing a role. Copyright 1993 by Ohio State University Press.
This paper studies the welfare properties of the equilibrium timing of price changes. Staggered price setting has the advantage
that it permits rapid adjustment to firm-specific shocks, but the disadvantages that it causes unwanted fluctuations in relative
prices and that, by creating price level inertia, it can increase aggregate fluctuations. Because each firm ignores its contribution
to these problems, staggering can be a stable equilibrium even if it is highly inefficient. In addition, there can be multiple
equilibria in the timing of prices changes; indeed, whenever there is an inefficient staggered equilibrium, there is also
an efficient equilibrium with synchronized price setting.
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. Copyright 2002 by American Agricultural Economics Association
We present a new approach to study empirically the effect of the introduction of the euro on currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice depends on the characteristics of both the currency and the country. We use unique quarterly panel data of Norwegian imports from OECD countries for the 1996-2006 period. One of the key findings is that the eurozone countries in trade with Norway have substantially increased their share of home currency invoicing after the introduction of the euro. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The econometric analysis shows a significant effect of euro introduction above and beyond the determinants of currency invoicing (i.e., inflation rate, inflation volatility, foreign exchange market size, and product composition). However, the rise in producer currency invoicing by eurozone countries is primarily caused by a drop in inflation volatility.
This paper describes a simple method of calculating a heteroskedasticity and autocorrelation consistent covariance matrix that is positive semi-definite by construction. It also establishes consistency of the estimated covariance matrix under fairly general conditions.
The relationship between cointegration and error correction models, first suggested by Granger, is here extended and used to develop estimation procedures, tests, and empirical examples. A vector of time series is said to be cointegrated with cointegrating vector a if each element is stationary only after differencing while linear combinations a8xt are themselves stationary. A representation theorem connects the moving average , autoregressive, and error correction representations for cointegrated systems. A simple but asymptotically efficient two-step estimator is proposed and applied. Tests for cointegration are suggested and examined by Monte Carlo simulation. A series of examples are presented. Copyright 1987 by The Econometric Society.
In the past fifteen years key exchange rates have moved in larger and more persistent ways than advocates of flexible rates in the late 1960s would have left anyone free to imagine. Certainly there was no expectation of constancy for nominal exchange rates. But real exchange rate movements of 30 or forty percent were definitely not suggested as a realistic possibility. Moreover where these large movements did occur they did not obviously appear to be connected with fundamentals, and hence seemed difficult to explain in terms of the exchange rate theories at hand. The persistence of rate movements was as surprising as the rapid unwinding of apparent misalignments when they did ultimately occur. The past fifteen years provide a natural dividing line between the Keynesian and monetary approaches of the 1960s, and the more recent analysis that takes into account exchange rate expectations and portfolio issues, which took off in the early 1970s as well as the brand-new approaches that concentrate on (partial equilibrium) microeconomics. To review these ideas the paper starts with a brief look at the U.S. experience with flexible exchange rates. From there it proceeds to the Mundell-Fleming model as a comprehensive framework of analysis. The following sections deal with persistent effects of policy disturbances, links between exchange rates and prices, the political economy of exchange rate movements and the question of policies toward excess capital mobility.
A new procedure for statistical inference in cointegrating regressions is developed. The author introduces canonical cointegrating regressions (regressions formulated with the transformed data). The required transformations involve simple adjustments of the integrated processes using stationary components in cointegrating models. Canonical cointegrating regressions, therefore, represent the same cointegrating relationships as the original models. They are, however, constructed in such a way that the usual least squares procedure yields asymptotically efficient estimators and chi-square tests. The methodology presented here is applicable to a very wide class of cointegrating models, including models with deterministic and singular, as well as stochastic and regular, cointegrations. Copyright 1992 by The Econometric Society.
This paper is concerned with the estimation of covariance matrices in the presence of heteroskedasticity and autocorrelation of unknown forms. Currently available estimators that are designed for this context depend upon the choice of a lag truncation parameter and a weighting scheme. No results are available regarding the choice of lag truncation parameter for a fixed sample size, regarding data-dependent automatic lag truncation parameters, or regarding the choice of weighting scheme. This paper addresses these problems. Asymptotically optimal kernel/weighting scheme and bandwidth/lag truncation parameters are obtained. Using these results, data-dependent automatic bandwidth/lag truncation parameters are introduced. Copyright 1991 by The Econometric Society.
When traders come to a market with different information about the items to be traded, the resulting market prices may reveal to some traders information originally available only to others. The possibility for such inferences rests upon traders having "models" or "expectations" of how equilibrium prices are related to initial information. This relationship is endogenous, which motivates the term "rational expectations equilibrium." This paper shows that, in a particular model of asset trading, if the number of alternative states of initial information is finite then, generically, rational expectations equilibria exist that reveal to all traders all of their initial information.
[eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed with wide income spreads allocated among few consumers whereas the second one is highly populated however not as wealthy. Among the results, we show that a low transportation costs induces the firm to exploit size effects through locating in the most populated region. Moreover, a small transport cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. [fre] Cet article d�veloppe une statique comparative de l'impact de diff�rents sc�narios d'investissement (projet d'infrastructure conduisant � une baisse mod�r�e ou � une forte baisse du co�t de transport inter-r�gional) sur le choix de localisation d'une entreprise en situation de monopole, au sein d'un espace int�gr� compos� de deux r�gions aux populations et revenus h�t�rog�nes. La premi�re r�gion, faiblement peupl�e, pr�sente de fortes disparit�s de revenus, tandis que la seconde, plus homog�ne en termes de revenu, repr�sente un march� potentiel plus �tendu. On montre que l'h�t�rog�n�it� des revenus constitue la force dominante du mod�le lorsque le sc�nario d'investissement privil�gi� par les politiques publiques conduit � des gains substantiels du point de vue du co�t de transport entre les deux r�gions. L'effet de richesse, lorsqu'il est associ� � une forte disparit� des revenus, n'incite pas l'entreprise � exploiter son pouvoir de march� au d�triment de la r�gion l
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Testing for Unit Roots and Cointegration by Variable Addition Advances in Econometrics
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