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The Impact of Monetary Policy on Agricultural Price Index in China: A FAVAR Approach

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  • Tan, Ying
  • Sha, Wenbiao
  • Paudel, Krishna

Abstract

We use recently available Chinese data from 2005m1 to 2016m2 to examine the impact of monetary policy on agricultural price using a factor-augmented vector autoregressive (FAVAR) model proposed by Bernanke et al. (2005). Results show the superiority of a FAVAR model with three variables and three factors over other specifications. Impulse response functions show that both money supply and interest rate have no impact on agricultural price in the long-run (beyond 50 months). However, results indicate the considerable short-run impact of monetary policy on agricultural price. According to forecasting error variance decompositions, the interest rate could account more for the fluctuations in agricultural price than the money supply.

Suggested Citation

  • Tan, Ying & Sha, Wenbiao & Paudel, Krishna, 2017. "The Impact of Monetary Policy on Agricultural Price Index in China: A FAVAR Approach," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252676, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea17:252676
    DOI: 10.22004/ag.econ.252676
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    Demand and Price Analysis; Research Methods/ Statistical Methods;

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