Effects of Expansionary Monetary Policy on Agricultural Commodities Market

Abstract

Agricultural commodities experienced a rise in prices during the first decade of the 2000s. The literature shows that the monetary policies adopted by developed economies can influence practically all economic indicators of developing markets. This paper aims to evaluate the effect of selected monetary policy measures on the prices of three selected agricultural commodities: soy, corn and sugar. Secondly, the study analyzes the price formation of these commodities during a period of expansionary monetary policy, in order to better understand how they are influenced by unconventional instruments. The central hypothesis is that the excessive liquidity created by the FED spills over to emerging economies, boosting investment and consumption there and, lastly, causing a commodity cycle. Our data (January 2000–December 2019) support this hypothesis and prove that expansionary monetary policy is capable of impacting agricultural commodities’ prices, but by different channels, due to the specificities of each commodity. The fact that people have more capital due to the credit obtained from loans seems to influence the price of sugar; soy is highly influenced by exchange rates of emerging markets, and corn is not very responsive to the used variables, which might be due to the high production rates of this commodity in the U.S. and the protectionist policies adopted by the government.