The Overshooting Hypothesis of Agricultural Prices: The Role of Asset Substitutability

By: Lai, Ching-Chong; Hu, Shih-Wen; Fan, Chih-Ping
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Lai, Ching-Chong; Hu, Shih-Wen; Fan, Chih-Ping, The Overshooting Hypothesis of Agricultural Prices: The Role of Asset Substitutability, Journal of Agricultural and Resource Economics, Volume 30, Issue 1, April 2005, Pages 128-150

By allowing for various degrees of asset substitutability between bonds and agricultural products, this paper reexamines the robustness of the overshooting hypothesis of agricultural product prices. It is found, in both a closed economy and an open economy, that the crucial factor determining whether agricultural prices overshoot or undershoot their long-run response following an expansion in the money stock depends upon the extent of asset substitutability between bonds and agricultural goods.