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

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.