Whether there is an Impact of Money Supply and Exchange Rate on Agricultural Prices in Pakistan

Muhammad Sajid Iqbal; Muhammad Hassam Shahid; Hamid Haroon ur Rashid

Authors

Muhammad Sajid Iqbal Pakistan Institute of Development Economics, Islamabad Author
Muhammad Hassam Shahid Corresponding Author, Ph.D. Economics scholar, Pakistan Institute of Development Economics, Islamabad Author
Hamid Haroon ur Rashid Ph.D. Economics scholar, Pakistan Institute of Development Economics, Islamabad Author

Keywords:

Money Supply, Exchange Rate, Agricultural Prices, Error Correction, Pakistan

Abstract

This study analyzed the long-run neutrality of money supply and exchange rate on the agricultural prices of Pakistan by using the Least Square Estimator (LSE) and Johansen & Jusileius from 1975 to 2016. The result shows that the neutrality of exchange rate does not hold in the long-run while the coefficient of money supply is insignificant in the long run emphasized the neutrality of money. There are some unobservable factors such as demand and supply empirically include in the model shows those prices of agricultural influenced by other factors in the short and long run. Therefore, result suggests that the monetary authorities can control the exchange ratethrough proper policies to overcome the overshoot problem of agricultural prices in Pakistan.