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

S. Devadoss, William H. Meyers
June 1986  [86-WP 5]

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's 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.

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