"Effect of Foreign Exchange Rate on Japanese Agricultural Income"
Bulletin of the National Agricultural Research Center, No.20, 1991,
National Agricultural Research Center (NARC)
Summary
Japanese agriculture will be linked to the world economy more strongly after the market liberalization for beef and oranges, and will be influenced by macroeconomic factors such as foreign exchange rate, interest rate, as well as agricultural policies. Therefore, it becomes necessary to construct an econometric model that links the Japanese agriculture to the world economy in order to evaluate agricultural and economic policies that affect the Japanese agriculture. In this paper, we analyze the effects of monetary policy, that is official discount rate and money supply, on the agricultural income through the fluctuation of the yen-dollar exchange rate and price of imported agricultural products.
Effects of money supply and official discount rate on agricultural income were evaluated as follows:
1) 1% increase in the rice price leads to 1.74% increase in the income of the rice sector.
2) 1% point increase in the money supply growth rate leads to 0.46% point increase in the inflation rate, which results in 2.35% depreciation of the yen, 0.28% increase in the domestic products price of non-rice sector, and finally 0.32% increase in the agricultural income of the sector.
3) 1% point decline in the official discount rate leads to 0.26% depreciation of the yen, and 0.03% increase in the agricultural income of the non-rice sector.
Considering that the ratio of between the income of the rice and non-rice sector is 1 to 1, 1% increase in the rice price and 5.4% point increase in the money supply growth rate seem to be equivalent in the effects on the agricultural income.