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Abstract
United States monetary and fiscal policies influence the domestic agricultural
economy directly and, through international linkages, indirectly. This study estimates
the magnitude and statistical influence of coefficients relating U.S. macroeconomic
policy to the U.S. agricultural economy through domestic and foreign
markets. Specific objectives are to specify and estimate a general equilibrium
quarterly econometric model of the U.S. macroeconomy and simulate the impact
of federal deficit spending on real interest rates, real exchange rates, and net
exports of agricultural products. Three hypotheses were tested. The first hypothesis
that an increase in federal deficit spending increases the real interest rate
could not be rejected; a $100 billion reduction in the U.S. deficit was estimated
to reduce real interest rates by two percentage points or more. The second hypothesis
that an increase in real interest rate increases the real value of the U.S.
dollar in foreign exchange markets had strong support and could not be rejected.
A third hypothesis that a rise in the real value of the dollar reduces net exports
of U.S. farm products also could not be rejected. Results indicate that the U.S.
agriculture would benefit from the lower exchange value associated with an 'optimal'
macroeconomic policy. That policy initially made the overall U.S. economy
perform less satisfactorily but that performance improves over time.