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Measurement of Effective Exchange Rates Appropriate for Agricultural Trade

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  • Dutton, John
  • Grennes, Thomas

Abstract

The paper is concerned with the effect of an exchange rate variation on agricultural trade. Most related literature has dealt with specification of economic models and empirical estimation of model parameters. In contrast, this paper concentrates on the appropriate measurement of multilateral exchange rate changes for the analysis of agricultural trade. Literature on the economic theory of index numbers was reviewed for guidance in constructing effective exchange rate indices. Major existing exchange rate indices were compared including those of the Federal Reserve Board, International Monetary Fund, Morgan Guaranty Trust, and the U.S. Department of Agriculture. New indices were constructed based on" alternative weighting schemes and index forms. In general, measurement differences among indices were not negligible and for certain periods, discrepancies were substantial. Of all the indices considered, the USDA's real trade-weighted dollar showed less appreciation of the dollar since 1980 than any of the other indices based on total trade or. agricultural trade. This raises the question of whether the USDA index understates the importance of exchange rates when large changes occur. The significance of the results is illustrated in terms of an agricultural trade model. It appears that proper measurement of the exchange rate variable may be as important as accurate measurement of parameters of the model.

Suggested Citation

  • Dutton, John & Grennes, Thomas, 1985. "Measurement of Effective Exchange Rates Appropriate for Agricultural Trade," Department of Economics and Business - Archive 259748, North Carolina State University, Department of Economics.
    • Handle: RePEc:ags:ncbuar:259748
    DOI: 10.22004/ag.econ.259748
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    References listed on IDEAS

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    1. Luther G. Tweeten, 1980. "Macroeconomics in Crisis: Agriculture in an Underachieving Economy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(5), pages 853-865.
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    Cited by:

    1. Dutton, John & Grennes, Thomas & Johnson, Paul R., 1986. "International Capital Plows and Agricultural Exports," 1986 Annual Meeting, July 27-30, Reno, Nevada 278452, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Baxter, Timothy M. & Smith, Mark E., 1987. "Exchange Rate Risk, Dollar Appreciation, And U.S. Export Credit Programs," Staff Reports 277944, United States Department of Agriculture, Economic Research Service.
    3. Dallas S. Batten & Michael T. Belongia, 1987. "Do the new exchange rate indexes offer better answers to old questions?," Review, Federal Reserve Bank of St. Louis, issue May, pages 5-17.
    4. Krissoff, Barry & Morey, Art, 1986. "The Dollar Turnaround And U.S. Agricultural Exports," Staff Reports 277923, United States Department of Agriculture, Economic Research Service.
    5. J. David Richardson, 1988. "Exchange Rates and U.S. Auto Competitiveness," NBER Chapters, in: Misalignment of Exchange Rates: Effects on Trade and Industry, pages 215-240, National Bureau of Economic Research, Inc.
    6. J. David Richardson, 1987. "Exchange Rates and U.S. Auto Competitiveness," NBER Working Papers 2371, National Bureau of Economic Research, Inc.
    7. Burfisher, Mary E., 1989. "Re-examining the Importance of Exchange Rates to U.S. Farm Exports to Developing Countries," WAEA/ WFEA Conference Archive (1929-1995) 245027, Western Agricultural Economics Association.
    8. Haley, Stephen L. & Krissoff, Barry, 1986. "The Value Of The Dollar And Competitiveness Of U.S. Wheat Exports," Staff Reports 277893, United States Department of Agriculture, Economic Research Service.
    9. Premakumar, Velupillai, 1990. "Measuring the impacts of credit restrictions on the trade performance of debtor nations," ISU General Staff Papers 1990010108000010382, Iowa State University, Department of Economics.
    10. Haley, Stephen L. & Krissoff, Barry, 1987. "U.S. Grain Exports and the Value of the Dollar," Journal of Agricultural Economics Research, United States Department of Agriculture, Economic Research Service, vol. 39(2), pages 1-10.
    11. Mack Ott, 1987. "The dollar's effective exchange rate: assessing the impact of alternative weighting schemes," Review, Federal Reserve Bank of St. Louis, issue Feb, pages 5-14.

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