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October 1987, 
Vol. 69, No. 8
Posted 1987-10-01

Changes in Financial Markets and Their Effects on Agriculture

by C. B. Baker

C. B. Baker, professor of agricultural economics at the University of Illinois, looks more closely at the linkages between financial markets and the markets for farm imports and outputs. Baker notes that agriculture, which is capital-intensive and export-sensitive, is affected profoundly by movements in interest rates and exchange rates. The growth and integration of international financial markets has modified significantly the role of domestic financial markets in channeling the effects of macroeconomic events and policies to agriculture. In addition, he notes, a dependence on the U.S. dollar as the de facto currency of world trade has created severe problems for the United States; international consequences of domestic monetary policies can, and do, feed back to the United States with net negative results.