The impact of changes in the money stock on the agricultural sectors of the economies of the United States and other selected countries

Abstract

This study gauges the impact of changes in the money stock on the income of the agricultural sector of the United States and its expenditure on capital equipment. Test equations which relate nominal money stock are derived as reduced forms of a model which assumes money is neutral in its impact on the farm and nonfarm sectors. Evidence was provided that there is a close and consistent relation between changes in the money stock and agricultural income and investment. Not only were changes in farm income and gross national nonfarm income, farm investment and gross private nonfarm investment closely related to changes in the money stock but evidence indicated that changes in the money stock produced equivalent changes in farm income and nonfarm income when adjustment was made for the size differential between farm income and nonfarm income. As a secondary analysis tests were made to determine if government involvement in the agricultural sector caused the agricultural sector to respond in a manner dissimilar to the zest of the economy with respect to changes in the money stock. It was found that government involvement in the agricultural sector does appear to distort the response of the agricultural sector to monetary policy. To further test this relation a study was made to determine the effects of changes in the money stock on the agricultural incomes and investments of thirty-seven countries. The results of these tests were compared with the findings of the tests on the United States farm and nonfarm sectors. It appeared that all of the countries tested responded to changes in the money stock in manners which reflected government involvement in the agricultural sectors. Those countries which had little government involvement in the agricultural sectors appeared to respond more closely to changes in the money stock than did those countries with considerable government involvement.