AGRICULTURAL PRICES AND MONEY SUPPLY : EVIDENCE FROM PAKISTAN

The objective of the study is to explore the direction of causality between money supply and agricultural prices in Pakistan. Two definitions of money supply, i.e., Ml and M2, and three measures of agricultural prices, i. e., prices of wheat, rice and food are used. The annual data for the period 1960-61 to 1996-97 is analyzed to check the causal relationship between money supply and agriculture prices. The econometric techniques of cointegration and error-correction modelling are employed to analyze the direction of causality. We find evidence of feedback relationship between money supply (M2) and prices of wheat and food. The unidirectional causality runs from money supply (Ml ) to price of wheat. The money supply (MI) as well as (M2) affect the price of rice hut no feedback is found