MONETARY POLICY UNCERTAINTY AND AGRICULTURAL CLIMATE RISK: DOES THE AGRICULTURAL KUZNETS CURVE EXIST?

Abstract

This study explores the impact of Monetary Policy Uncertainty (MPU) on Agricultural Climate Risk (AGCR) in China, particularly in light of recent climate vulnerabilities in the agricultural sector, highlighted by recent floods. Using balanced panel data from 31 provinces between 2010 and 2022, diagnostic tests confirm cross-sectional dependence and slope heterogeneity, and the Westerlund cointegration test indicates a long-term relationship among variables. Results from generalized panel quantile regression show that MPU positively affects AGCR, especially at lower quantiles, but this effect can be moderated by agricultural insurance. The findings also confirm an agricultural Kuznets curve, where agricultural productivity initially increases AGCR before reaching a turning point that reduces it. Furthermore, a unidirectional causality flows from MPU to AGCR, while a bidirectional causality exists between AGCR and productivity, underscoring the need for targeted resilience strategies for vulnerable provinces.