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Abstract
This paper examines the importance of monetary macro-economic variables on Canadian agricultural prices using vector autoregressive (VAR) modeling. The research results suggest that U.S. monetary macro-economic policy as represented by the u.s. /world exchange rate is the most significant monetary factor influencing Canadian agricultural price instability. The paper also examined how agricultural prices and manufactures prices respond to a monetary shock. The results suggest that agricultural prices respond more quickly in the short run but that manufactures prices catch up in later periods. This conclusion supports Bordos contract length hypothesis and Frankel's overshooting hypothesis. It does not support Tweeten's cost-price squeeze hypothesis.
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