The impacts of monetary policies on US agriculture

The increased integration of the U.S. farm sector with the nonfarm sector, during the past decade, both domestically and internationally, led to significant implications for farm product prices, input costs, and farm income from developments in international and/or domestic economies. This is true, especially in light of the effects of exchange rates, interest rates, and inflation, all of which are influenced by macroeconomic policies and capital markets, on the farm sector. However, much of the literature in the area of macroeconomics of agriculture mainly focused on the linkage between exchange rates and agricultural commodity trade; relatively little attention has been given to other macrointerconnections such as interest rates, inflation, and income linkages;This study examines the interrelationships between the macrosector and agriculture by incorporating exchange rates, interest rates, inflation, and income linkages in a general equilibrium macroeconometric model. Using this model, the effects of changes in U.S. monetary policies on the U.S. farm sector (particularly on crop prices, livestock product prices, crop production and demand, exports, inventories, livestock production and demand, and farm incomes) are examined through these four linkages;Since the exchange rate is an important monetary factor that influences the agricultural commodity trade, in this study, the exchange rate is endogenized by following the monetary approach to exchange rate determination. The sample period of the study is 1950-1982. The estimated model has good statistical properties. In particular, all the coefficients related to the four macrolinkages are consistent with a priori expectations and, thus, provide evidence for the hypothesis that macroeconomic developments are very important for the hypothesis that macroeconomic developments are very important for U.S. agriculture;The results indicate that the effect of money supply changes on agricultural trade and prices would be magnified if a more complete set of linkages are specified rather than specifying only the exchange rate linkage. Furthermore, the simulation results show that an expansionary monetary policy has a positive impact on the farm sector, since such a policy increases the farm prices and income through the above-mentioned four linkages. On the other hand, a contractionary monetary policy has an adverse effect on the farm sector by decreasing farm prices and incomes

Geometric combinatorial algebras: cyclohedron and simplex

In this paper we report on results of our investigation into the algebraic structure supported by the combinatorial geometry of the cyclohedron. Our new graded algebra structures lie between two well known Hopf algebras: the Malvenuto-Reutenauer algebra of permutations and the Loday-Ronco algebra of binary trees. Connecting algebra maps arise from a new generalization of the Tonks projection from the permutohedron to the associahedron, which we discover via the viewpoint of the graph associahedra of Carr and Devadoss. At the same time that viewpoint allows exciting geometrical insights into the multiplicative structure of the algebras involved. Extending the Tonks projection also reveals a new graded algebra structure on the simplices. Finally this latter is extended to a new graded Hopf algebra (one-sided) with basis all the faces of the simplices.Comment: 23 figures, new expanded section about Hopf algebra of simplices, with journal correction

Input Price Uncertainty and Factor Demand

A simple two-input and one-output model is used to examine the effects of variable input price uncertainty on a quasi-fixed factor. These theoretical results, applied to a livestock firm, indicate that choice of the quasi-fixed factor depends upon the attitude of the farmer toward risk and whether the inputs are complements, substitutes, or independents

Monetary Policies, Interest Rates, and U.S. Agriculture: An Economic Simulation Analysis

In the agricultural economics literature, relatively little attention has been given to the effects of interest rates on the U.S. farm sector. According to macroeconomic theory, monetary policy influences the interest rate. Changes in the interest rate will have an effect on a farmer\u27s decision to borrow credit and thus on farm production and inventory decisions. Economists believe that the recent farm financial crisis was caused by higher interest rates, which were the result of a tight monetary policy pursued by the Federal Reserve authorities. This study investigates the effect of changes in U.S. monetary policies on supply, demand, and prices of farm products through the interest rate linkages between the macroeconomy and the farm sector

Nonneutral Effects of Money Supply on Farm and Industrial Product Prices

Changes in relative prices or terms of trade, i.e., the ratio of farm output to farm input or nonfarm output prices, have significant implications for the farm economy. If the prices farmers receive for their outputs increase (decrease) relative to the prices they pay for their inputs, the economic well being of farmers is enhanced (diminished). The terms of trade are likely to change if general price inflation changes. Thus, movements in general price inflation can affect farm income significantly. Recent macroeconomics literature postulates that to the extent that general inflation can in and of itself generate relative price changes, it is only the unanticipated inflation can do so. And, fully anticipated inflation has no effect on relative prices. This study examines the effect of unanticipated inflation generated by unanticipated changes in the money supply\u27s growth rate on relative prices, and derives the implications for farm income. Section II presents a brief survey of past studies on this issue. Section III explains the Vector Autoregression (VAR) technique, developed and popularized by Sims, which is used for the analysis. Section IF discusses empirical results obtained from the VAR methods. Finally, Section V sets forth the conclusions

Money, Inflation, and Relative Prices: Implications for U.S. Agriculture

In a recent study, Starleaf, Meyers, and Womack (S-M-W, 1985) analyzed the behavior of annual time series data in the United States on various farm and nonfarm price indices over the 1929-1983 period and three subperiods in order to examine the proposition that changes in the general rate of inflation have Nonneutral effects on the farm sector. They found that short-run increases (decreases) in the rate of inflation of farm input and nonfarm output prices have typically been accompanied by even larger short-run increases (decreases) in the rate of inflation of farm output prices. While S-M-W did not explicitly account for the effects of unanticipated inflation on these relative prices in their empirical analysis, they concluded that these regularities indicate that an unanticipated increase (decrease) in general inflation rate tends to enhance (diminish) the well-being of farmers. This conclusion is consistent with macroeconomic theory that unanticipated aggregate demand shocks will affect relative prices in favor of producers of nondurable goods traded in flex-price markets. It is however, surprising to the believers of the conventional wisdom, who content that farmers suffer from inflation. Tweeten, for example, has presented evidence in several studies that he says support the view that farmers hare harmed by higher rates of general price inflation

Commodity Market Outlook and Trade Implications Indicated by FAPRI Analysis

A commodity market outlook for wheat, coarse grains, and soybeans is evaluated for the period through the mid-1990s. The projections are based on assumptions about economic growth and agricultural policies that closely resemble current conditions. The projections include world market prices as well as supply, demand, and trade in these key commodities. The evaluation includes detailed breakouts of coarse grain and wheat production, consumption, and trade in major developing countries and regions. Although grain price projections show stable or declining levels in real U.S. dollars, pressure on per capita consumption remains a problem, especially in Africa. Also, although some of the strong import growth in rapidly growing developing countries is a sign of dynamic economic performance, import growth in many poor countries is an unfortunate necessity brought about by meager growth in agricultural production relative to rapid growth in population

An Adaptive Policy Simulation Model to Analyze Price Reforms for Lithuanian Food and Agricultural Products

Lithuania is one of three Baltic republics. Its area is 25.2 thousand square miles and it has a total population of 3.72 million people. The republic is currently moving towards independence. There are numerous political changes as a result. One outcome of these political changes is the reform of existing economic policies that have been governed by highly centralized planning systems since the incorporation of the republic into the Soviet Union in 1940. All sectors of the economy will be affected by these economic policy changes. Economists, government legislators, and leaders of agricultural and industrial enterprises were heavily involved in the process of formulation of economic reforms. The final goal of the reforms is to move towards a market-oriented economy. Within this framework of overall reform, the agricultural sector has been emphasized because of its nature and its importance to the national economy. Traditionally, the republic has been agriculturally oriented. For instance, the contribution of the agro-industry to the total GNP of the republic was 5.4 percent in 1989, compared with 42.6 percent in 1980 and 50.3 percent in 1975. The rural population, heavily employed in the agricultural sector, comprises 31.5 percent of the republic\u27s total population

The World Soybean Trade Model: Specification, Estimation, and Validation

The soybean trade model is one of the three models in the trade modeling system developed, updated, and maintained by the Center for Agricultural and Rural Development (CARD). The other two commodity trade models are for wheat and the feed-grains complex. The three trade models are linked through cross-price linkages in the supply and demand components of these models, yet each model can be solved independently. In general, however, all three trade models are solved iteratively to obtain a simultaneous solution. Equilibrium price, quantities of supply and demand, and net trade are determined by equating excess demands and supplies across regions and explicitly linking prices in each region to a world reference price

An U.S. Export Disposal Policy for Wheat and Corn Stocks: A Quantitative Analysis for 1977/78 to 1984/85

Over the past decade the operation of the commodity loan programs and since 1977 the farmer-owned reserve (FOR) programs, has resulted in the accumulation of large quantities of grain stocks both in the hands of the government and in the hands of farmers, sealed under the reserve program. Government and farmer-owned reserve (FOR) stocks for wheat exceeded a billion bushels several times in recent years and for corn reached two and a half billion bushels in 1982/83. The build-up of these stocks in 1982/83 led to the implementation of the massive acreage reduction under the Payment-in-Kind (PIK) program. Government-owned (CCC) and FOR stocks were used in this program as payment to farmers for idling cropland