Monetary Shocks And The Overshooting Hypothesis Of Agricultural Prices

This paper aims to investigate whether the overshooting hypothesis of agricultural prices stands with the Chinese monthly data from January2005to December2012. With the Johansen cointegration test and the vector error correction model (VEC), the empirical results show that the adjusting speed of agricultural price is significantly faster than the adjusting speed of industrial prices under monetary shocks, which indicates that agricultural prices overshoot industrial prices. However, the impacts of monetary on Chinese economy are proved to be not neutral in the long run; that means only some of conclusions on the overshooting hypothesis of agricultural price are supported by the Chinese data. In addition, the empirical results also imply that the interventions on the exchange rate may lead to instability in the prices of industrial and agricultural products, and may push the rapid rise of the domestic price level.