unmapped effects. The existence of three cointegration vectors amongst the Hungarian
agricultural prices, industrial prices, exchange rate, and money supply, proves the existence of
a long-run equilibrium relationship between the variables. It follows, that shocks to
macroeconomic variables find their way onto the agricultural sector. After identifying the
cointegrating equations and examining the slope coefficient of the money supply, we found
that the money neutrality hypothesis doesn’t hold for Hungary. In accordance with the
theoretical model mentioned above, we found evidence that agricultural prices adjust faster to
monetary shocks than industrial prices do. The other flexible sector considered (the exchange
rate) also adjusts faster to temporary shocks than the sticky, industrial sector. Thus, if a
monetary shock occurs, the flexible sectors will have to bear the burden of adjustment,
reducing the financial viability of the Hungarian farmers.
References
Ardeni, P. G. and Freebairn, J. (2002). The Macroeconomics of Agriculture. In: Gardner, B.
and Rausser, G.C. (eds.). Handbook of Agricultural Economics. Vol. 2A. Amsterdam: North-
Holland, 1455-1485.
Ardeni, P. G. and Rausser, G.C. (1995). Alternative Subsidy Reduction Path: The Role of
Fiscal and Monetary Policy Linkages. in. Rausser, G.C. (ed.) GATT Negotiation and the
Political Economy of Policy Reform. Springer-Verlag, Berlin, 315-345
Barnett, R., Bessler, D. and Thompson, R. (1983). The Money Supply and Nominal
Agricultural Prices. American Journal of Agricultural Economics 66, 303-307.
Bessler, D.A. (1984). Relative Prices and Money: A Vector Autoregression on Brazilian Data.
American Journal of Agricultural Economics 65, 25-30.
Bordo, M.D. (1980). The Effect of Monetary Change on Relative Commodity Prices and the
Role of Long-Term Contracts. Journal of Political Economy 61, 1088-1109.
Brooks, K. and Nash, J. (2002). The Rural Sector in Transition Economies. In: Gardner, B.
and Rausser, G.C. (eds.). Handbook of Agricultural Economics. Vol. 2A. Amsterdam: North-
Holland, 1547-1592.
Chambers, R.G. and Just, R.E. (1980). A Critique of Exchange Rate Treatment in Agricultural
Trade Model: Reply. American Journal of Agricultural Economics 62, 255-259.
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