Over the last two decades, a substantial body of empirical studies has been devoted to examining what dynamic patterns of agricultural and manufactured product prices will be exhibited when the economy experiences a monetary shock. Countries that suffer a recession might consider using monetary policy, fiscal policy, or even both as the same time. Thus, this paper investigates the effects of monetary and fiscal policy announcements on the economy. In addition, the effect of an intertemporal policy mix on the economy is also discussed.
We find that (1) money neutrality still holds. (2) At the moment of an announcement, agricultural product prices jump quickly if the government announces an increase in money supply but drop if the government announces an increase in government expenditures. However, the change in agricultural product prices could go either way at the moment of annoucement of a mixed policy. It depends on the time-lag effect of the announcement and the quantity effect of implemention. (3) Under a mixed pilicy, if the government implements a monetary policy first, agricultural product prices will decrease continuously but the time path of manufactured product prices will depend on the values of the interest rate semi-elasticity of the demand for money and the price elasticity vis-a-vis the demand for manufactured peoducts.