INFLATION, AGRICULTURAL PRICES AND ECONOMIC CONVERGENCE IN GREECE

The relationship between agricultural prices and the general price lev el in Greece is estimated using econometric methods for non-stationary variables, preceded bq, cointegration and unit root tests which deal with the complications arising from the impact of the 1973 oil shock o n the pl ice series. It is found that agricultural prices overshoot in the short-run, while the adjustment speed to the long-run inflation n eutrality is slow. The results contradict previous findings for Greece while the methods used by various researchers in the past are critici sed. The existence of overshooting partly explains the evolution of ag ricultural prices in Greece during the past two decades, while the low er inflation rates envisaged by the economic convergence programme to meet the Maastricht criteria, will cause a 15 per cent decline in real agricultural prices during the period 1994 to 1998.