Iranian Journal of Agricultural Economics and Development Research

Iranian Journal of Agricultural Economics and Development Research

Investigating the effect of monetary policy shocks on the price of the agricultural commodities (food-industrial)

Document Type : Research Paper

Authors
Ali Eskandaripour 1
Omid Sattari 1
Parisa Pas 2
1 Assistant Professor, Faculty of Administrative Science & Economics, Vali-E-Asr University of Rafsanjan, Iran
2 MSc of Economic Systems Planning, Vali-E-Asr University of Rafsanjan, Iran
10.22059/ijaedr.2021.308173.668943
Abstract
   The agricultural sector is one of the most important sectors of the economy in terms of food supply for the growing population and the production of materials and inputs needed by industries. Therefore, price fluctuation in agricultural commodities prices is a significant issue to be studied.  This study examines the effect of monetary policy shocks on the price of different agricultural commodities (food-industrial) using the Generalized Method of Moments (GMM) approach for the period 2001-2019. The volume of money as a proxy for monetary policy at the national level has been used. The Hodrick–Prescott (HP) filter is used to identify monetary policy shocks. The findings of this study suggest that although anticipated shocks and unanticipated shocks of money supply affect the price of agricultural commodities, the intensity of these impacts are different. So that the anticipated shocks in both commodities groups (food-industrial) play a significant positive role in agricultural commodity prices. While unanticipated monetary shock have a positive and significant effect on prices for the group of agricultural industrial commodities, it appears to have had virtually no effect on prices for the agricultural food commodities group. Besides, the results show that the effect of monetary policy shocks on prices of agricultural commodities is asymmetric in two groups. This means that the effects of the anticipated and unanticipated monetary shocks on agricultural prices are not the same.
Keywords
: monetary policy
monetary policy shocks
agricultural commodity price
Generalized Method of Moments-GMM
  1. Alam, M. R., & Gilbert, S. (2017). Monetary policy shocks and the dynamics of agricultural commodity prices: evidence from structural and factor‐augmented VAR analyses. Agricultural Economics, 48(1), 15-27.
  2. Azizi, F. (2003). Methods of estimating potential production and its experimental test in Iran (1961-1998), Journal of Budget Planning, 2(8), 39-69. (In Farsi)
  3. Baltagi, B. H. (2005). Econometric Analysis of Panel Data, John Wiley and Sons Inc., 3rd Edition, New York, USA.
  4. Campbell, J. (Ed.). Asset Prices and Monetary Policy, University of Chicago Press, Chicago, 291–327.
  5. Coletti, D., Lalonde, R., Masson, P., Muir, D., & Snudden, S. (2021). Commodities and monetary policy: implications for inflation and price level targeting. Journal of Policy Modeling.
  6. Dadras Moghaddam, A. & Zibaei, M. (2009). The relationship between macroeconomic and agricultural variables (with emphasis on monetary policy). Iranian Journal of Economic Research, 13( 39), 111-95. (In Farsi)
  7. Dornbusch, R. (1976). Expectations and Exchange Rate Dynamics. Journal of Political Economy, 6( 84), 1161-1176.
  8. Fam, P. G. Hennani, R. & Huchet, N. (2017). US Monetary Policy, Commodity Prices and the Financialization Hypothesis. Review of Economic and Business Studies, 2(10), 53-77.
  9. Frankel, J. (2008). The effect of monetary policy on real commodity prices. In John Campbell (ed) Asset Prices and Monetary Policy. Chicago; University of Chicago press.
  10. Frankel, J. A. (1985). International capital mobility and crowding out in the US economy: imperfect integration of financial markets or of goods markets?.
  11. Frankel, J.A. (1986). Expectation and commodity price dynamics: The overshooting. American Journal of Agricultural Economics, 2(68), 344-348.
  12. Frankel, J.A. (2014). Effects of speculation and interest rates in a “carry trade” model of commodity prices. J. Intl. Money Fin. 42, 88–112.
  13. Gol Khandan, A. Khansari, M. & Gol Khandan, D. (2015). Militaryism and Economic Growth: Experimental Evidence from the Countries of the Mena Region in the Form of a Dynamic Panel. Journal of Economic Growth and Development Research, 5 (18), 31-50. (In Farsi)
  14. Herati, J. (1382). Investigating the Effects of Macroeconomic Variables on Food Price Index Using a Self-Explanatory Model with Extensive Interruptions (ARDL) Case of Iran (1338-1379)Sc. Thesis, Shiraz University. (In Farsi)
  15. Hajian, M. H., Khalilian, S., & Daliri, A. (2008).The impact of monetary and fiscal policies on the main variables of agricultural sector in iran. journal of sustainable growth and development (the economic research), 7(4), 27-47. (In Farsi)
  16. Kilian, L. & Murphy, D.P. (2014). The role of inventories and speculative trading in the global market for crude oil. J. Appl. Economet. 3(29), 454–478.
  17. Kim, J., & Kim, S. (2021). Monetary policy shocks and delayed overshooting in farm prices and exchange rates. International Review of Economics & Finance, 71, 620-628.
  18. Krugman, P. (2011). Commodities: This time is different, The NewYork Times, January 29, 2011.
  19. Mahmoud Gardi, R, Khalilian, S. & Mortazavi, S. A. (2012). Investigating the Impact of Monetary and Fiscal Policies on Private Investment in Iran's Agricultural Sector. Journal of Agricultural Economics and Development, 20(77), 81-108. (In Farsi)
  20. Mallick, S.K. Sousa, R.M. (2012). Real effects of monetary policy in large emerging economies. Macroeconomic Dynamics, 16(S2), 190-212.
  21. Manjabb, M. Nosrati, R. Advanced Econometric Models (with eviews & Stata), Mehraban Nashr Book Institute, (2017). (In Farsi)
  22. Mirzaei Khalil Abadi, H. R. Naqavi, S. Mehrabi Boshr Abadi, H. & Jalali Esf&abadi, A. J. (2009). Investigation of the effect of monetary shocks on the growth of the agricultural sector. Journal of Agricultural Economics Research, 146-123. (In Farsi)
  23. Pindyck, R.S. (2001). The dynamics of commodity spot and futures markets: A Energy J. 3(22), 1–29.
  24. Pish bahar, E. & Alizadeh, P. (2014). Vertical price transfer in the market of potato and onion products (Case study: Kurdistan province), Iranian Journal of Agricultural Economics and Development Research, 2(47), 543-533. (In Farsi)
  25. Pishbahar, I. & javedan, A. (2013). The effect of monetary shocks on food prices in Iran. Journal of Economic Research (Sustainable Growth and Development), 4(15), 127-141. (In Farsi)
  26. Pishbahar, I. Dashti, Q. & Khalili Malekshah, S. (2016). A Study of the Effects of Macroeconomic Variables on the Prices of Iranian Agricultural Products: An Approach to the Structural Self-Explanation Model (SVAR) and Sudar Non-Rotating Graphics (DAG). Journal of Agricultural Economics and Development, 24(95), 25-47. (In Farsi)
  27. Pourmoghadam, A. Mehrabi Boshr Abadi, H. Jalaei Esf&abadi, S. A. & Mirzaei, H. (2018). Simulation of the effect of monetary, financial and oil shocks on food and non-food consumption: DSGE approach. Journal of Economics and Research, 1(15). 87-108. (In Farsi)
  28. Saghaian, S. H. Reed, M. R. & Marchant, M. A. (2002). Monetary impacts and overshooting of agricultural prices in an open economy. American Journal of Agricultural Economics, 1(84), 90-103.
  29. Saheb Honar, H. Cheshmi, A. & Fallahi, M. A. (2013). Study of the effect of monetary shocks on different sectors of the Iranian economy. Journal of Economic Growth and Development Research, 3(11), 41-56. (In Farsi)
  30. Schuh, G. E. (1974). The exchange rate & U.S. agriculture. American Journal of Agricultural Economics, 1(56), 1–13.
  31. Scrimgeour, D., 2014. Commodity price responses to monetary policy surprises.
  32. Sheikhpour, M. & Nabihian, S. (2018). Investigating the impact of monetary shocks on investment in Iran's agricultural sector. Journal of Agricultural Economics Research, 7, 10(40), 125-144. (In Farsi)
  33. Sherafatm&, H. Yazdani, S. & Moghadasi, R. (2014). Risk management of the price of the date crop using the futures market, Iranian Journal of Agricultural Economics and Development Research, 4(45), 601-611. (In Farsi)
  34. Siami-Namini, S. & Hudson, D. (2016). U.S. monetary policy and commodities price fluctuations. Presentation at the 86th Annual Meeting of the Southern Economic Association. Washington DC.
  35. Tan, Y., Sha, W. & Paudel, K. (2017). The impact of monetary policy on agricultural price in China: a factor-augmented vector autoregressive (FAVAR) approach. Available at SSRN 2916984.
  36. Tashkini, A. & Shafiee, A. (2005). Monetary & financial variables of the neutral money test. Journal of Business Research, 35, 125-152. (In Farsi)
  37. Taybi, S. K. Haji Karami, M. & Sariri, H. (2011). Analysis of the degree of financial and commercial openness on Iran's financial development and business partners (1996-2009). Journal of Economic Research, 1(4), 39-60. (In Farsi)
  38. Yazdani, S. Hasanki, M. & Norouzi, H. (2018). Investigating the Effects of Guaranteed Prices and Production Costs on the Cultivated Area of Agricultural Strategic Crops, Iranian Journal of Economic Research and Agricultural Development, 2(50), 19-28. (In Farsi)
Iranian Journal of Agricultural Economics and Development Research
Volume 52, Issue 4
Autumn 2021
Pages 863-878