Long-run neutrality of money supply for food prices in Germany with policy effects
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Using a modified Fisher-Seater model with consideration of policy impacts, this paper attempts to tests the long-run neutrality of money supply on food prices in Germany after the launching of the Eurozone. The main findings include: (1) we can not reject the super neutrality of money for aggregated food prices; (2) However, staple food and its derived products – meat- are very sensitive to money supply, and their prices can increase to be much higher than money growth rate, perhaps due to speculative effects and demand effects; (3) Fresh or perishable products are usually less sensitive to money growth; (4) Most products decreased their prices after the launching of decoupling policy in Europe in 2003. The results can explain the links between money supply and food prices in a long run and also give insightful implications for the ongoing reform of CAP (Common Agricultural Policy) in Europe.