The Spillover of US Monetary Policy on EU Agricultural Prices: A Panel VARX Analysis

Abstract

This research examines the nexus between US monetary policy shocks and agricultural prices of the EU. Utilizing monthly prices of beef, wheat, and barley of 21 EU countries, we estimate the impact of US monetary policy shocks on these three agricultural prices in a Panel Vector Autoregression with Exogenous Variables (PVARX) framework. We find that a contractionary monetary policy shock in the US has heterogeneous effects across the storable and non-storable commodity prices in the EU. Specifically, a contractionary monetary policy shock in the US reduces EU wheat and barley prices and increases EU beef prices. However, the estimated impulse response functions of dynamic multipliers reveal that these three commodity prices return to equilibrium within two months.