Public Policy, the Exchange Rate, and Agricultural Exports: Discussion

Abstract

During the past twelve years, the volatile behavior of exchange rates has occupied the attention of economic policy makers because exchange rates directly influence such important economic phenomena as inflation, interest rates, and international competitiveness. In today's highly integrated world economic system, exchange rates are particularly important to export-oriented sectors like U.S. agriculture. In spite of the potential significance of exchange rate changes to U.S. agricultural trade, the agricultural economics profession has begun rather slowly to investigate and empirically test some basic hypotheses relating to flexible exchange rates and agricultural trade. The three papers presented in this session discuss several aspects of the exchange rateagricultural trade relationship. The Batten and Belongia paper is an empirical study of the role real exchange rates play in affecting agricultural exports and of the factors that explain real exchange rates. Their empirical analysis consists of an estimated U.S. agricultural export equation where foreign real income, U.S. real agricultural prices, and the real trade-weighted exchange rate are the explanatory variables. Next, the authors present an equation that utilizes the real interest rate differential and the cumulative current account balance as the basic determinants of the real exchange rate of the dollar.