The monetary policy impact on agricultural growth and food prices

Aswin Rivai
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Aswin Rivai: Assistant Professor, Faculty of Business, Universitas Pembangunan Nasional Veteran Jakarta, Jl. Fatmawati Raya No.1, Jakarta Selatan, Indonesia

International Journal of Research in Business and Social Science (2147-4478), 2022, vol. 11, issue 9, 158-165

Abstract: Agricultural growth is closely associated with sustainable economic development. This is especially true from the perspective of developing countries, such as Indonesia and Pakistan, where significant portions of the labour force are dependent on agriculture for their livelihood. This paper aims to examine the effects of macroeconomic policy (i.e. monetary policy) on employment, food inflation, and agricultural growth by analysing to what extent monetary policy is effective in controlling food price inflation, the effect of contractionary monetary policy on the agricultural sector’s employment and productivity, and the extent of monetary policy transmission to money market rates and 10-year interest rates. We employed a factor-augmented vector autoregressive model proposed by Bernanke et al. (2005) to agricultural data from 1995 and 1996 to 2016 for Indonesia and Pakistan, respectively. Main findings of the study demonstrate that tight monetary policy significantly reduced food inflation and agricultural production while increasing the rural unemployment rate. Short-term and 10-year interest rates increased owing to the contractionary monetary policies pursued by both countries. An inclusive monetary policy whereby policymakers work alongside governments to achieve price stabilisation and reasonable employment rates is recommended. Key Words:Agricultural Growth, Food Inflation, Monetary Policy, Food Prices

Date: 2022
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