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Business & Economics

Monetary Impacts and Overshooting of Agricultural Prices: Evidence from Slovenia
Lajos Zoltan Bakucs, Stefan Bojnec, Imre Ferto

ABSTRACT. This article examines the impacts of monetary policy on agricultural prices in the Slovenian economy using time series cointegration and vector error correction analysis. The empirical results indicate that agricultural prices adjust faster to monetary shocks than industrial prices do, affecting relative agricultural prices in the short run, but strict long-run money neutrality does not hold. We also find that the exchange rate as a flexible sector variable, adjusts faster to temporary shocks than the sticky, industrial prices. This implies that in a case of monetary shocks the agricultural sector associated with flexible changes bears the burden of adjustment vis-à-vis the sectors with sticky changes. These macroeconomic effects are reflected in real agricultural price volatility and the agricultural sector incomes by reducing the financial viability of the farmers.

KEYWORDS: agricultural prices, exchange rates, monetary shocks, overshooting, transition economy, Slovenia.

JEL classification: C32, E51, P22, Q11.