Agriculture and short run macroeconomics

Abstract

A short run macro-model is formulated to derive the interactions between farm and nonfarm sector in response to stabilization policies. Exagenous variables are changes in fiscal and monetary policies, exchange rate, and international prices. Endogenous variables explicitly analyzed are farm and nonfarm real incomes and nominal and relative prices. Main results of the model are: (a) relative prices tend to change when exogenous variables change; (b) farm output and relative price tend to be reduced by expansive fiscal and monetary policies even If income elasticity of demand for farm products is zero; (c) although the inflationary effect of expansive monetary or fiscal policy is higher the lower the elasticity of supply of farm products, farm nominal prices tend to increase at most a much as nonfarm nominal prices. The effects of several different assumptions regarding supply and demand elasticities upon the model results are derived.