The impact of excess liquidity on the domestic food price inflation — Analysis based on the structural VAR

The different price elasticity of supply leads to the differences in a dynamic pattern of price adjustment to a global liquidity shock in the short run, but the products with low elasticity such as the agricultural commodity may cause an "overshooting" price in the short run. This paper attempts to confirm which has the more effect on our domestic food price inflation, U.S liquidity excess or China liquidity surplus. The U.S. excess liquidity has an impact on the domestic food price inflation through the transmission mechanism of the international commodity and the domestic excess liquidity. By means of the structural vector auto-regression model, the paper finds that the effect of imported excess liquidity and the commodity price on the food-driven inflation is less than that of the domestic liquidity surplus.