The name is absent



(1980) argue that price shocks stemming in oligopolistic non-agricultural sector and
accommodated by expansionary monetary policy, cause inflation and place agriculture in a
price-cost squeeze.

Other streams of research address the broader macroeconomic environment. Arising from
Dornbusch’s (1976) overshooting models of exchange rate determination, these studies
establish the linkages among exchange rates, money, interest rate and commodity prices.
Frankel (1986) applied Dornbusch’s model in which exchanges rates, money supply, interest
rate and aggregate demand determine commodity prices assuming closed economy. He
emphasised the distinction between “fix-price” sectors (manufacturers and services sector),
where prices adjust slowly and “flex-price” sector (agriculture), where prices adjust
instantaneously in response to a change in the money supply. In Frankel’s model, a decrease
in nominal money supply is a decline in real money supply. This leads to an increase in
interest rate, which in turn depresses real commodity prices. The latter then overshoot
(downward) their new equilibrium value in order to generate expectation of a future
appreciation sufficient to offset higher interest rate. In the long run, all real effects vanish. Lai,
Hu and Wang (1996) employed Frankel’s framework and phase diagram to investigate how
money shocks influence commodity prices. They found that with unanticipated monetary
shocks, commodity prices overshoot, but, if manufactured prices respond instantly,
commodity prices undershoot. Saghaian, Reed and Marchant (2002) extended Dornbusch’s
model with agricultural sector and allowing for international trade of agricultural
commodities. Agricultural prices and exchange rate are assumed flexible, while industrial
prices are assumed to be sticky. Employing small open country assumption, they showed that
when monetary shocks occur, the prices in flexible sectors (agriculture and services)
overshoot their long-run equilibrium values. Furthermore, they showed that with presence of a
sticky sector, in case of monetary shock, the burden of adjustment in the short run is shared
by two flexible sectors and having a flexible exchange regime decreases the overshooting of
agricultural prices and vice versa. The extent of overshooting in the two flexible sectors
depends on the relative weight of fix-price sector.

All studies found significant effects of changes in macroeconomic variables for monetary
policy and exchanges rates in the short run. Several authors found that farm prices respond
faster than non farm prices, which consistent with hypothesis that relative prices change as
money supply changes due to price level in the various sectors change differently (Bordo
1980, Chambers 1984, Orden 1986a and 1986b, Devadoss and Meyers 1987, Taylor and



More intriguing information

1. Naïve Bayes vs. Decision Trees vs. Neural Networks in the Classification of Training Web Pages
2. Improving behaviour classification consistency: a technique from biological taxonomy
3. The name is absent
4. EXECUTIVE SUMMARY
5. WP 48 - Population ageing in the Netherlands: Demographic and financial arguments for a balanced approach
6. Public-private sector pay differentials in a devolved Scotland
7. THE RISE OF RURAL-TO-RURAL LABOR MARKETS IN CHINA
8. CONSIDERATIONS CONCERNING THE ROLE OF ACCOUNTING AS INFORMATIONAL SYSTEM AND ASSISTANCE OF DECISION
9. Biologically inspired distributed machine cognition: a new formal approach to hyperparallel computation
10. A Principal Components Approach to Cross-Section Dependence in Panels
11. The Functions of Postpartum Depression
12. Putting Globalization and Concentration in the Agri-food Sector into Context
13. ‘I’m so much more myself now, coming back to work’ - working class mothers, paid work and childcare.
14. On the origin of the cumulative semantic inhibition effect
15. The name is absent
16. The name is absent
17. From music student to professional: the process of transition
18. Fiscal Insurance and Debt Management in OECD Economies
19. Research Design, as Independent of Methods
20. Ventas callejeras y espacio público: efectos sobre el comercio de Bogotá