A SURVEY OF MACROECONOMICS AND AGRICULTURE

In 1973, the Bretton-Woods Agreement collapsed and the U.S. dollar was allowed to float. Since then, agricultural economists have paid considerable attention to the relationship between agriculture and the macroeconomy. Indeed, the magnitude of macroeconomic policy impacts on agriculture have been among the most important and hotly disputed issues in agricultural economics during the past decade (Schuh 1974, 1976; Chambers, 1981; Rausser 1985; Orden 1986III). This paper undertakes a critical survey of previous literature on the macroeconomics of agriculture. The main controversies will be outlined and priorities for future research will be discussed. How agricultural variables are related to macroeconomics variables, and how government policies affect those variables under different theoretical models, will receive most attention. In Section II, the important role of agriculture in the macroeconomy will be stressed by looking at key summary statistics. Then, the major issues and controversies that have arisen in the literature will be surveyed. Section III then provides a brief sketch of the macroeconomic environment facing agriculture. The mechanisms through which macroeconomic events get transferred to agriculture will be given particular attention. In Section IV, the current status of macroeconomic theory will be outlined through a selective review of the general macroeconomics literature. Implications for the effects that monetary and fiscal policies might have on aggregate macroeconomic indicators will be provided. In Section V, the implications of alternative macroeconomic theories for how macroeconomic policies affect agriculture will be discussed. The impact of farm policies and variables on the macroeconomy will also be considered. Finally, Section VI will discuss future research directions and conclude the study with a brief summary of findings.