Journal of Agriculture & Life Sciences

The Effect of Money Supply on the Prices of Different Agricultural Products
Liu Jiansheng

Abstract
In the past 20 years, China has experienced three times of severe inflation. Although the reasons for each inflation are different, the price fluctuations of agricultural products are higher than that of industrial products. This article was based on agricultural product price fluctuation which is influenced by the money supply, namely under the condition of agricultural prices overshoot. In the current economic situation, especially since the global financial crisis in 2008, in order to alleviate employment pressure and stimulate economic growth, the governments is generally adopted a loose monetary policy which lead to the surging prices. So this paper will make a further discussion about the relationship between money supply and the prices of different agricultural goods. Compared with industrial products, whether the increase of liquidity has a greater impact on the price of agricultural products, how much difference it has on the price of various agricultural products, and clarifying the reasons behind the price fluctuations of various agricultural products, plays an important role in the formulation of China's monetary policy. Although there are a lot of studies on such issues which compare agricultural products as a whole with industrial products, but few studies divide agricultural products into different categories such as vegetable basket products, poultry storage products, aquatic products and grain products, and separately study the impact of money supply on them. Therefore, it is of great significance to classify agricultural products and do a further study on the influence of money supply on their prices. The measurement methods adopted in this paper include co-integration test and error correction model. Based on the co-integration test, we get the conclusion that the money supply increase lead to the sharpest increases in the prices of aquatic products, livestock products second and vegetable basket products last. Through the error correction model inspection, we found the degree of deviating from the long-term equilibrium price is different in the short term, livestock products after shock wave is the largest, second of aquatic products, grain basket product deviation is minimized because various agricultural products price elasticity of demand are different, and this paper also make reasonable explanations on the meaning of economics.

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