Commodity prices

Commodity world prices experienced important changes over the past five decades (see Figures 8 and 9, for real28 and nominal prices, respectively). During the 1960s and 1970s, prices of agricultural products (particularly food and beverages) stayed high in real terms. Oil prices jumped significantly during the mid- to late 1970s. As Figure 8 World real prices for commodities, 1957-2008. Source IMF (2008). Figure 8 World real prices for commodities, 1957-2008. Source IMF (2008). I Metals -A-...

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This handbook devotes most of its chapters to reviewing sectoral policies related to agriculture. This chapter moves to a macroeconomic and macrosectoral view of the policy framework and its possible interaction with the agricultural sector. A previous handbook (Gordon Rausser and Bruce Gardner, eds., 2002) devoted a whole section with several chapters to economywide policies.1 Since then, there have been nontrivial changes in macroeconomic trends and policy debates, not only regarding domestic...

Background

Nominal rates Except where indicated otherwise, nominal exchange rates (ER) are defined in units of domestic currency per unit of foreign currency (usually the U.S. dollar). Appreciation (depreciation) of a currency means that the amount of that currency paid for one unit of foreign currency decreases (increases). A strong (weak) currency is one that has appreciated (depreciated) vis-a-vis others. The effective exchange rate (EER1) for a product is the nominal rate corrected by taxes or...

Box 1 ERER Determinants for Developing Countries

The external terms of trade, defined as the ratio of the price of a country's exports over the price of its imports. Most African countries mainly export primary commodities, such as oil, lumber, metals, and diamonds, and or agricultural products (e.g., coffee and cocoa). The price for these primary commodities is determined in world commodity markets and subject to significant volatility affecting the terms of trade. An improvement in the terms of trade will positively affect the trade...

Box 1 ERER Determinants for Developing Countries Contd

Government consumption as a share of GDP relative to that of foreign trading partners. An increase in government consumption biased toward nontradables creates higher demand for nontradables (relative to the tradable sector). This greater demand boosts the relative prices of nontradable goods, causing the equilibrium real exchange rate to appreciate. However, if the increase in overall government consumption is biased toward the tradable sector, an increase in spending will cause the ERER to...

Exchange rate policies

The exchange rate is one of the most important macroprices. The level and changes (both actual and expected) of the exchange rate have wide influence through the economy, affecting and being affected by the demand and supply of tradable and nontrad-able products, the demand and supply of money and monetary assets denominated in local currency in comparison with assets denominated in other currencies, the inflow or outflow of capital, and the public budget, among other things. The importance of...

Exchange rate regimes policies and outcomes

A first point to be noticed is the decline in the number of countries with dual or parallel foreign exchange markets, from about 30-50 of the countries in the 1970s and 1980s to about 10 of all countries (developed and developing) by the 2000s (see Rogoff et al., 2003). This suggests the prevalence of a more orderly macroeconomic framework and less distorted relative prices. Yet for some developing regions, such as Table 20 Real effective exchange rates, 1980-2001 Table 20 Real effective...

Exchange rates and agricultural growth

The impact of the level and changes in the real exchange rate on the net trade of tradable goods and services has been amply documented (Balassa, 1988 Orden, 1986).86 A different question involves the impact of the level and changes of the real exchange rate on the rate of growth of the economy in general and of the agricultural sector in particular. Various studies have shown that the overvaluation of the real exchange tends to depress economic growth in general. Even more, it appears that...

Fiscal policies 421 Background

Fiscal policies have general macroeconomic effects on aggregate demand expansion as well as impacts on aggregate supply through the influence on macroprices (price level and inflation, interest rate, real exchange rate, and sometimes wage levels in the economy) and microeconomic effects linked to specific taxes, subsidies, and expenditures. It has been argued that high levels of government expenditures and overall taxes, as well as persistent deficits, affect growth negatively (Barro and...

Half A Century Of World Macroeconomic Developments An Overview

Changes in the agricultural sector and food markets of developing countries over the last decades, and in fact in their economies in general, have been heavily influenced by major world macroeconomic developments. Schuh (1986) summarized the developments up to the mid-1980s by highlighting four main issues increased dependence on international trade worldwide, including for many developing countries that were abandoning import-substituting industrialization policies and turning toward an...

Heterogeneity of agricultural conditions Production and food security

The 2008 World Development Report from the World Bank, which focuses on agricultural issues, divides developing countries into three groups, depending on the contribution of agriculture to growth and the importance of rural poverty. The groups are called agriculture-based countries (where agriculture contributes significantly to growth and the poor are concentrated in rural areas), transforming countries (where agriculture contributes less to growth but poverty is still predominantly rural),...

Heterogeneity of country conditions

The fact that developing countries are different from industrialized countries and that they also differ greatly among themselves is obvious. Since the early debates about long-term development strategies, those differences were invoked to design specific policies for developing countries. That debate also included the need to adjust macro-economic policies (and not only long-term growth policies) to the specific structural characteristics of those countries.9 More recently different books have...

Inflation targeting

Another recent development in monetary policies in developing countries (basically of the urbanized group) has been inflation targeting (IT). The factors affecting inflation can also be presented using the following equation (see, for instance, Fortin, 2003) I a + b1*(Lg)I(-1) + b2*Iexp + b3*(Lg)X + b4*(Lg)Z + e (6) where current inflation (I) depends on five components I( 1) lagged inflation, a backward-looking variable (with Lg indicating the number of lags) Iexp, expected inflation, a...

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Figure 18 Devaluation of REER and agricultural growth. leading to less (more) growth for the economy as a whole emerge only after controlling for other influences. But the figures help motivate the following discussion that tries to show the complexities involved. Let's consider the agricultural margin per unit of product Net margin (nominal) Pag Unitary costs where Pag is the agricultural price of a specific product at the farm level and unitary costs include both fixed and variable costs per...

Kenneth J Arrow Michael D Intriligator

North-Holland is an imprint of Elsevier The Boulevard, Langford Lane, Kidlington, Oxford OX5 1GB, UK Radarweg 29, PO Box 211, 1000 AE Amsterdam, The Netherlands 2010 Elsevier BV. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage and retrieval system, without permission in writing from the publisher. Details on how to seek permission, further...

Macroeconomic accounts

Building consistent and complete macroeconomic models requires, among other things, that they utilize a definition of flows and stocks that follows double-entry conventions of accounting with regard to the income statement and the balance sheets of the economic agents (Christ, 1987). In fact, it has been said that macroeconomics is a collection of accounting equations plus opinions. The latter abound about macroeconomic causality (or closure rules) about the intra- and intertemporal behavior of...

Macroeconomic debates and crises in the 1980s and early 1990s

Part of the criticisms of the restrictive monetary policy came from the structuralist tradition, which has always maintained that inflation and balance-of-payments problems are caused by nonmonetary forces, and therefore monetary policies would be, in the best of circumstances, ineffective. But another line of criticism (which came from both structuralist and nonstructuralist economists) argued that monetary policies would not only restrain demand but also shift supply downward through the...

Macroeconomics Macrosectoral Policies and Agriculture in Developing Countries

Macroeconomic and Macrosectoral Policies Some Precisions and Conceptual Issues 3036 1.1 What are the macroeconomic problems and issues considered 3036 1.2 Macroeconomic accounts 3038 1.3 Macroeconomic links to agriculture and the rural sector 3044 2. Brief Characterization of Macroeconomic and Agricultural Structural Issues 2.1 Heterogeneity of country conditions 3048 2.2 Heterogeneity of agricultural conditions Production and food security 3049 2.3 Heterogeneity of agricultural conditions...

Monetary and financial issues linked to agriculture

What are some of the possible implications of the trends and policies discussed previously for the agricultural sector For those countries with open capital accounts and dollarization (mostly in the urbanized category), the different monetary conditions changed the possibilities for resorting to the traditional approach of directed credit. As mentioned, one of the characteristics of the developmental state in many developing countries until the market liberalization reforms starting in the late...

Monetary and financial policies 431 Background

Monetary conditions affect growth, employment, inflation, exchange rates, interest rates, the operation of the banking and financial systems, and the probability of crises. Here only a brief discussion of the multiple topics involved can be sketched. The relationship among money, growth, and inflation has been long debated. In monetary theory there are a variety of results Inflation has been argued to have no effect on growth (money is super-neutral Sidrauski, 1967) positive (Tobin, 1965, who...

Trends in monetary conditions

In all developing regions, as in the industrialized world, inflation decreased since the mid-1990s, although the performance has varied over time and across regions (see Table 13). Asia experienced only mild increases, more in line with inflationary developments in the industrialized world, converging during the 2000s to rates below 3 annually. Inflation peaked during the early 1990s in LAC and Africa the highest rate was 460 in 1990 in LAC (with cases of hyperinflation in some countries) and...

Volatility and crises

Besides average growth performance, volatility of growth may have consequences for agriculture. Table 3 shows the volatility in aggregate consumption for developing countries. Figure 5 shows the proportion of developing countries with zero or negative growth each year from 1961 to 2005, measured in GDP per capita (see also the decade averages in Table 3). The largest number of developing countries in recession occurred at the time of global slowdowns in 1975, 1982, and 1992. The exception is...

What are the macroeconomic problems and issues considered

The distinction between growth (with policies acting on the aggregate supply, mainly in the medium to long term) and stabilization of cycles (with policies directed at aggregate demand, basically in the short run, to smooth out expansions and recessions) seems, at first, a natural way to organize the discussion about macroeconomic issues. If that dichotomy were accepted, the macroeconomic policy problem could be simply defined as the stabilization of the aggregate demand around the...

World Monetary Conditions Inflation and Interest Rates

Schuh's analysis pointed to increasing inflation as one of the characteristics of the world economy since then monetary and macroeconomic policies in general have reversed the trend, in what has been called the rise and fall of inflation (IMF, 1996), with a parallel cycle for nominal and real interest rates (see Table 3). Along with the reduction in growth volatility during recent years (which included both developing and industrialized countries), the decline in inflation and interest rates...

A chronological narrative 521 The 1960s and the 1970s

As discussed in Section 3, the 1960s were years of high growth (in both developed and developing countries), moderate inflation, low (and even negative) real interest rates, accelerated expansion of trade, and high real prices of commodities (see Table 3). The economic buoyancy of those years was based on expansionary Keynesian macro-economic policies in industrialized and developing countries. Stable exchange rates among main industrialized countries under the Bretton Woods system, coupled...

Evolution of the exchange rates in developing countries

Wood (1988) analyzed the evolution of the RER in developing countries from the 1960s to the 1980s. He shows that the RER79 has been depreciating in most developing countries (except oil exporters) during that period (his data end in the mid-1980s). He reports that the ratio of the 1980-1984 to the 1960-1964 RERs was 0.61 for low-income developing countries (not counting India and China, which had ratios of 0.62 and 0.4, respectively) and 0.85 for middle-income, oil-importing developing...

Macroeconomic policies and the agricultural sector

During the 1960s and 1970s, while still within the framework of development and macroeconomic policies shaped by the import-substitution industrialization, the agricultural sector began to receive greater attention. Sectoral policies included investments in technology (the Green Revolution), land reform, settlement programs, and community development, along with specific price, marketing, and credit schemes. In the 1970s, under the auspices of various international organizations, the main...

Fiscal issues and agriculture

Expenditures Deteriorating public sector finances, along with the decline in world agricultural prices in the mid-1980s, led to fiscal adjustments and pressures to reduce support for agriculture in many countries. For instance, at the beginning of the 1980s several countries in South America, such as Brazil and Chile, embarked on accelerated programs to expand production of wheat and other cereals due to concerns about shortages heightened by high prices in the second half of the 1970s. When...