AGEC 625 – Macroeconomic Issues in Agriculture
COURSE SYLLABUS
Course: Macroeconomic
Issues in Agriculture
Fall, 2006
Instructor: Philip Abbott Secretary: Angie Holt
Room 576,
Phone: 494-4274 Phone: 494-4301
E-mail: abbottpc@purdue.edu E-mail: amholt@purdue.edu
Class
Meeting: Krannert G7 MWF 8:30-9:20
Course Objectives:
Macroeconomic events have been critical to the
evolution and fortunes of the agricultural sector - in the
Despite widespread recognition that the macroeconomic
environment matters, agricultural economists have had limited success in
incorporating these issues and ideas into their microeconomic-oriented models
and in documenting quantitatively the linkages between macroeconomic and
microeconomic phenomenon. This mirrors the difficulties economists generally
have in explaining exchange rate movements, interest rate differentials or
income growth, likely the most important linkages between agriculture and the
macro economy.
The objectives of this course are to expose students
to the nature and importance of linkages between agriculture and the
macro-economy, and examine theories and methods that might allow us to
establish or quantify these linkages in agricultural models. We will explore
extensions of macroeconomic accounting and theory into an open economy, examine
attempts by agricultural economists to estimate macroeconomic linkages and
build them into commodity models, and consider consequences of implicit and
explicit macroeconomic assumptions in much of our work. The changing role of
agriculture in an economy under structural transformation will be key to
understanding these linkages and how they evolve, as shown in several new
developments seeking to explain both recent events and policy history in
macro-theoretical frameworks consistent with observed empirical regularities.
We will use Macroeconomics, 5th edition
by Andrew Abel and Ben Bernanke (Pearson Addison Wesley,
Website:
The course web site may be accessed via WebCT (
http://www.itap.purdue.edu/tlt/ecourses/
The Syllabus, Course outline, and access to
Course Requirements, Examinations and Grading:
Grades for this course will be determined from
performance on:
Final examination
(30%),
one class presentation (30%) and supporting paper,
occasional homework problem sets (30%),
and class participation (10%).
The final examination will be scheduled during
the week of December 11-16, 2006 (finals week). It will be 2 hours in duration and will cover
material from the entire course -- it is a comprehensive examination. Notes, books and handouts will be permitted
for the final examination – it is open book and open notes. Class presentation
topics will be assigned (negotiated) based on student interests and readings on
this syllabus. This year presentations will review a topic rather than cover a
single paper, and a written paper supporting the presentation is required.
Review questions for this course and old exams may be
accessed at the course website.
Course Outline and
I. Overview: Agriculture’s Role in the Macroeconomy
Recent Macro-economy
history
* Andrew Abel and Ben Bernanke, Macroeconomics
5th edition, Pearson Addison Wesley,
*ERS, USDA Briefing Room on Macroeconomics and Agriculture http://www.ers.usda.gov/Briefing/Macroeconomics/
Agricultural Baseline
Projections: Macroeconomic Assumptions, 2006-2015
http://www.ers.usda.gov/Briefing/Baseline/macro.htm
International Macroeconomic Data Set
http://www.ers.usda.gov/data/macroeconomics/#BaselineMacroTables
*“China’s Exchange Rate Regime and its Effects on the
U.S. Economy,” John B. Taylor Under Secretary of Treasury for International
Affairs Testimony before the Subcommittee on Domestic and International
Monetary Policy, Trade, and Technology House Committee on Financial Services
October 1, 2003 http://www.ustreas.gov/press/releases/js774.htm
Chad
Bown, Meredith Crowley, Rachel McCulloch and Daisuke J. Nakajima, “The U.S.
trade deficit: Made in China?,” Economic
Perspectives, Vol. 29, Federal Reserve Bank of Chicago, Chicago,
Illinois, 4th Quarter 2005. http://www.chicagofed.org/publications/economicperspectives/ep_4qtr2005_part1_bown_crowley_mcculloch.pdf
Federal
Reserve Bank of Cleveland, Economic Trends (The Twin Deficit Problem),
December 2004.
Kevin
L. Kliesen and William Poole, “Agriculture Outcomes and Monetary Policy
Actions: Kissin’ Cousins?” 2000 ASU Agriculture-Business Conference Agriculture
2000: Issues and Alternatives, February 16, 2000.
Purdue University Cooperative Extension Service, Food
System 21 -- Gearing up for the New Millennium, Publication EC-710,
November 1997.
Chapter
2 -- Macro Economy by Deboer, Tyner and Taylor
Chapter
3 – International Trade by Abbott,
Hertel, Masters, Paarlberg, Sanders and Tyner
UNCTAD,
Trade and Development Report, 2003 –
Capital accumulation, growth and structural change, United Nations,
Ag Linkages: Reviews and History
*
Philip Abbott and Alex McCalla, “Agriculture in the Macroeconomy: Theory
and Measurement,” Handbook of Agricultural Economics Vol. 2a, Chapter
31, G. Rausser and B. Gardner, eds. North Holland, Amsterdam, 2001, pp.
1659-1686.
Zobbee,
Henrik and Philip Paarlberg, “The Shaky Foundation of Farm Policy in the
Don Paarlberg,
“Obituary for a Farm Program,” Choices, First Quarter 1999, pp. 33-36.
T.W. Schultz,
“Organization for Price Stability,” Chapter 20 in The Economic Organization
of Agriculture,
Globalization and the Macro Environment
* Joseph Stiglitz, Globalization
and its Discontents, Chapters 1 & 2, (Promise of Global Institutions),
W.W. Norton & Company,
* Kaushik
Basu, “Globalization and the Politics of International Finance: The
Stiglitz Verdict,” Journal of Economic
Literature XLI (3), September 2003, pp. 855-899.
*Rogoff,
Kenneth, “The IMF Strikes Back,” Foreign
Policy January/February 2003, pp. 39-46.
http://www.foreignpolicy.com/Ning/archive/archive/134/rogoff2.qxd.pdf
Daniel Yergin and Joseph Stanislaw, Commanding Heights: The Battle for the World
Economy, PBS Video presentation, April, 2002, http://www.pbs.org/wgbh/commandingheights/hi/story/index.html
Michael Mandelbaum, The Ideas that Conquered the World, Chapters 9-11 (The Liberal Theory
of History – on Economics), Public Affairs,
* Philip
Abbott, Mike Boehlje and Otto Doering, “Coming to Grips with Globalization,”
Choices, Winter 2001-2002, pp.
43-46. http://www.choicesmagazine.org/2002-4/2002-4-08.pdf
Exchange Rates
* Edward
Schuh, “The Exchange Rate and US Agriculture,” American Journal of
Agricultural Economics 56 (1974), pp. 1-13.
* Maurice Schiff
and Alberto Valdes, “Agriculture and the Macroeconomy, with Emphasis on
Developing Countries,” Handbook of Agricultural Economics, G. Rausser
and B. Gardner, eds. North Holland,
Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version
6.1, Center for International Comparisons at the University of Pennsylvania
(CICUP), October 2002. http://pwt.econ.upenn.edu/php_site/pwt_index.php
II. Open Economy Macroeconomics
Accounting
National
Income Accounting
* Abel and Bernanke, “The Measurement and Structure of
the National Economy,” Chapter 2 in Macroeconomics.
Balance of
Payments and National Accounts
* Abel and Bernanke, “Savings and Investment in the
Open Economy,” Macroeconomics, Chapter 5.
Jack
L. Hervey and Loula Merkel,
“A record current account deficit: causes and implications,” Economic Perspectives, Vol. 24,
Federal Reserve Bank of Chicago, Chicago, Illinois, 4th Quarter 2000. http://www.chicagofed.org/publications/economicperspectives/2000/4qep1.pdf
Social
Accounting Matrices
Kenneth Reinert and David Roland-Holst, “Social
Accounting Matrices,” in Applied Methods for Trade Policy Analysis,
Francois and Reinert, eds., Cambridge University Press, Cambridge, 1997, pp.
94-121.
Lance Taylor, “Numbers for National Planning,” Chapter
2, pp. 12-29 in Macro Models for Developing Countries, McGraw Hill, New
York, 1979.
Erik Thorbecke, The Use of Social Accounting Matrices
in Modeling,” Paper Prepared for the 26th General Conference of The
International Association for Research in Income and Wealth, Cracow, Poland, 27
August to 2 September 2000 http://www.iariw.org/papers/2000/thorbecke.pdf
Analyses
Based Largely on Accounting Principles
* Paul Krugman, “Adjustment in the World Economy,” in Currencies
and Crises, Paul Krugman ed., MIT Press,
Lance Taylor, “Consistent Short Term Projections Using
Rudimentary Data,” Chapter 3, pp. 30-48; and “Macroeconomics of Egyptian Food
Subsidies,” Chapter 4-3, pp. 58-66 in Macro Models for Developing Countries,
McGraw Hill, New York, 1979.
Macroeconomic Theory
Closed Economy
Models: Review
* Paul Krugman, “There’s something about macro” http://web.mit.edu/krugman/www/islm.html
* Abel and Bernanke, “The IS-LM/AD-AS Model: A General
Equilibrium Framework for Macroeconomic Analysis,” Chapter 9 in Macroeconomics,
and Appendix 10.A.
Open Economy
Linkages: Purchasing Power Parity, Interest Rate Parity
Models:
Algebraic, Aggregate Supply-Aggregate Demand, IS-LM
* Abel and Bernanke, “Exchange Rates, Business Cycles
and Macroeconomic Policy in the Open Economy,” Chapter 13 and Appendix 13.A in
Macroeconomics.
Dennis R. Appleyard and Alfred Field, “The Foreign
Exchange Market” and “International Financial Markets and Instruments: An
Introduction,” Chapters 21 and 22, International Economics, 3rd
Edition, Irwin McGraw Hill,
Policy in an Open Economy
* Abel and Bernanke, “Exchange Rates, Business Cycles
and Macroeconomic Policy in the Open Economy,” Chapter 13, in Macroeconomics.
Dennis R. Appleyard and Alfred Field, “Macroeconomic
Policy in the Open Economy - Part VI,” Chapters 26-28, International
Economics, 3rd Edition, Irwin McGraw Hill,
Lucio Sarno and Mark Taylor, “Official Intervention in the Foreign Exchange Market: Is it Effective, and If So, How Does it Work?” Journal of Economic Literature, XXXIX, September 2001, pp. 839-868.
Kenneth
Rogoff, “Globalization and Global
Disinflation,” Economic Review Federal Reserve Bank of
Policy Trilemma
in
* Sherry
Kiser, “Tough decisions for
* “Down, and almost out, in
Alejandro
Reca, Kenneth Shwedel, Carlos Ortiz and Fabiano Costa, “
*Jean-Christophe
Bureau and Yves Le Roux, “The Economic Consequences of the Implementation
of the Euro,” COM/AGR/CA/TD/TC(99)73,
OECD, Paris, October 1999.
Competing
Macroeconomic Models
* Rudiger
Dornbusch, “Real Exchange Rates and Macroeconomics: A Selective Survey,” Scandinavian
Journal of Economics, 1989,
91(2):401-432.
* Susanto
Basu and Alan Taylor, “Business Cycles in International Historical
Perspective” in The Journal of Economic Perspectives, Spring 1999 13(1):
45-68.
Peter Kenen,
“Macroeconomic Theory and Policy: How the Closed Economy was Opened,” Handbook
of International Economics, Vol II., R Jones and P. Kenen eds., Elsevier
Science Publishers, Amsterdam, 1985, pp. 626-677.
Christian
Broda, “Terms of Trade and Exchange Rate Regimes in Developing Countries,”
Federal Reserve Bank of
III. Evidence
on Prices and Market Failures
* Maurice
Obstfeld and Kenneth Rogoff, “The Six Major Puzzles in International
Macroeconomics: Is there a Common Cause?” NBER Working paper 7777, National
Bureau of Economic Research,
* Pinelopi
Goldberg and Michael Knetter, “Goods Prices and Exchange Rates: What Have
We learned?” Journal of Economic Literature, September 1997, XXXV(3):
1243-1272.
James
Anderson and Eric van Wincoop, “Trade Costs,” Journal of Economic Literature XLII(3), September 2004, pp. 691-751
Alan
M. Taylor and Mark P. Taylor, “The Purchasing Power Parity Debate,” Journal of Economic Perspectives 18(4) ,
Fall 2004: pp. 135-58.
* R.
Glenn Hubbard, “Capital Market Imperfections and Investment,” Journal of
Economic Literature XXXVI(I) March 1998, pp. 193-225.
Maurice Obstfeld, “The Global Capital
Market: Benefactor or Menace,” Journal of Economic Perspectives, Fall
1998, 12(4): 9-30.
Karen
Lewis, “Trying to Explain Home Bias in Equities and Consumption,”
Journal of Economic Literature XXXVII(2) June 1999, pp. 571-608.
Robert
Barsky and Lutz Kilian, “Oil and the Macroeconomy Since then1970s,” Journal of Economic Perspectives 18(4),
Fall 2004: pp.115-134.
IV. Growth Theory and Dynamics
Growth Theory and Growth Regressions
* Abel & Bernanke,
Agenor, P.R. Chapter 13: “The Determinants of Economic Growth: An
Empirical Overview”
The Economics
of Adjustment and Growth,
* Jonathan
Temple, “The New Growth Evidence,” Journal of Economic Literature XXXVII,
March 1999, pp 112-156.
*Wolfgang Keller, “International Technology Diffusion,” Journal of Economic Literature XLII(3), September 2004, pp. 752-782.
*Fransciso Rodriguez and Dani Rodrik, “Trade Policy
and Economic Growth: A Skeptic's Guide to Cross-National Evidence”NBER Working
Paper No. 7081 http://www.nber.org/papers/w7081
Jeffrey A. Frankel; David Romer, “Does trade cause growth?” American Economic Review, Vol. 89, No.
3. (Jun., 1999), pp. 379-399. http://links.jstor.org/sici?sici=0002-8282%28199906%2989%3A3%3C379%3ADTCG%3E2.0.CO%3B2-U
Dani
Rodrik, “Institutions Rule: The Primacy of Institutions over Geography and
Integration in Economic Development,” Working paper 9305, NBER,
http://www.nber.org/papers/w9305
Lant Pritchett,
“Divergence, Big Time,” Journal of Economic Perspectives 11(3) Summer, 1997, pp.
3-17.
* E.
Borensztein, J. De Gregorio and J-W. Lee,
“How does foreign direct investment affect economic growth?” Journal of
International Economics Volume 45, Issue 1 , 1 June 1998, Pages 115-135
Beata Smarzynska
Javorcik, “Does Foreign Direct
Investment Increase the Productivity of Domestic Firms? In Search of Spillovers
through Backward Linkages” American
Economic Review, Volume 94, Number 3, 1 June 2004, pp. 605-627(23)
Macroeconomic Dynamics
* Stephen J. Turnovsky, International Macroeconomic
Dynamics, MIT Press, Cambridge, MA, 1997, Chapters 1, 2 & 4, pp. 1-54,
101-150.
Stephen J. Turnovsky, Methods of Macroeconomic
Dynamics, 2nd edition, MIT Press, Cambridge, MA, 2000, Chapter
13, pp. 419-486 .
Edward Green,
“A Review of Interest and Prices: Foundations of a Theory of Monetary Policy by
Michael Woodford,” Journal of Economic
Literature Vol. XLIII (March 2005), pp. 121–134.
Exchange
Rate Determination Models
* Rudiger Dornbusch, Open Economy Macroeconomics,
Part 4 (Chapters 10-12), Basic Books,
* Rudiger
Dornbusch, “Expectations and Exchange Rate Dynamics,” Journal of Political Economy 84 (6) December 1976, pp. 1161-1176.
V.
Macroeconomics and General Equilibrium
Macroeconomics in CGE structures
* Rudiger Dornbusch, Open Economy Macroeconomics,
Chapter 14, Basic Books,
Joseph Francois, Bradley McDonald and Hakan Nordstrom,
“Capital Accumulation in Applied Trade Models,” in Applied Methods for Trade
Policy Analysis, Francois and Reinert, eds., Cambridge University Press,
Cambridge, 1997, pp. 364-382.
Tom
Hertel, “Applied General Equilibrium Analysis of Agricultural Policies,” Handbook
of Agricultural Economics, Vol. 2a, G. Rausser and B. Gardner, eds. North
Holland, Amsterdam, 2002.
Roberta Piermartini and Robert The, “Demystifying
Modelling Methods for Trade Policy”
Discussion Paper No. 10, World Trade Organization,
http://onlinebookshop.wto.org/shop/article_details.asp?Id_Article=661
Closure
* Sherman
Robinson, “Macroeconomics, Financial Variables and Computable General
Equilibrium Models,” World Development, 19(11):1509-1525, 1991.
* Maureen
Kilkenny and Sherman Robinson, “AGE Analysis of Agricultural
Liberalization: Factor Mobility and Model Closure,” Journal of Policy
Modeling 12(3): 527-556, 1990.
* M.
Dewatripoint and G. Michel, “On Closure Rules, Homogeneity and Dynamics in
Applied General Equilibrium Models,” Journal of Development Economics
26:65-76, 1987.
Lance
Taylor and Rudiger von Arnim, “Computable General Equilibrium Models of Trade
Liberalization: The Doha Debate”
Dynamic
Closure
Dominique van der
Mensbrugghe, LINKAGE Technical Reference Document, Version 6.0
Development Prospects Group
(DECPG), THE WORLD BANK, January, 2005.
http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1100792545130/LinkageTechNote.pdf
Incorporating market imperfections and rigidities
* Caroline
Betts and Michael Devereux, “Exchange Rate Dynamics in a Model of Pricing
to Market,” Journal of International Economics 50 (2000), pp. 215-244.
Philip
Lane, The New Open Economy Macroeconomics: a Survey,” Journal of
International Economics,” 54 (2001),
pp. 235-66.
* Lance Taylor, “Structuralist CGE Models,” in Socially
Relevant Policy Analysis, Taylor, ed., MIT Press, Cambridge, MA, 1990,
pp.1-70.
Elana
Ianchovichina, Robert McDougall and Thomas Hertel, “
Romeo
Bautista, Sherman Robinson, Finn Tarp and Peter Wobst, “Policy Bias and
Agriculture: Partial and General Equilibrium Measures,” Review of
Development Economics, forthcoming. IFPRI TDM discussion paper 25, 1998.
*Sandra Polaski, “Winners and Losers: Impact of the
Carnegie Endowment for
International Peace,
http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=18083&prog=zgp&proj=zted
VI.
Agricultural Applications
Context: Agriculture’s Role in the Macroeconomy
John Freebairn
and Pier Georgio Ardeni, “Agriculture and the Macroeconomy,” Handbook of
Agricultural Economics, Vol. 2a, G. Rausser and B. Gardner, eds. North
Holland,
Robert G. Chambers, “An Overview of Exchange Rates and
Macroeconomic Effects on Agriculture,” in Macroeconomics, Agriculture and
Exchange Rates, P. Paarlberg and R. Chambers, eds. Westview Press, Boulder,
CO, 1988, pp. 1-22.
Robert L. Thompson, “U.S. Macroeconomic Policy and
Agriculture,” in Macroeconomics, Agriculture and Exchange Rates, P
Paarlberg and R Chambers, eds. Westview Press, Boulder, CO, 1988, 219-226.
Globalization and the Macro Environment
Robert
Sharer, “An Agenda for Trade, Investment and Regional Integration,” Finance
and Development, December 2001, pp. 14-17
(see also other articles on Globalization and
ERS,
USDA, International Financial Crises
and Agriculture, WRS-99-3, World Agricultural Outlook Board, ERS, USDA,
Washington, DC, March 2000.
http://www.ers.usda.gov/publications/agoutlook/jan2000/ao268e.pdf
Exchange Rates
G. Edward Schuh, “Some Issues Associated with Exchange
Rate Realignments in Developing Countries,” in Macroeconomic, Agriculture
and Exchange Rates, P. Paarlberg and R. Chambers, eds. Westview Press,
Boulder, CO, 1988.
*Robert
Chambers and Richard Just, “A Critique of Exchange Rate Treatment in
Agricultural Trade Models,” American Journal of Agricultural Economics
61 (1979), pp. 249-57.
Colin
Carter, Richard Gray and W.H. Furtan, “Exchange Rate Effects on Inputs and
Outputs in Canadian Agriculture,” American Journal of Agricultural Economics
David Orden,
“Exchange Rate Effects on Agricultural Trade and Trade Relations,” presented to
Fifth Mexico/Canada/US Conference on Policy Harmonization and Adjustment in
North American Agricultural and Food Industry, March 1999.
Guadae Cho,
Ian Sheldon and Steve McCorriston, “Exchange Rate Uncertainty and Agricultural
Trade,” American Journal of Agricultural Economics
Christopher
Barrett, “The Effect of Exchange Rate depreciation on producer prices in
Low Income Agriculture,” Economic Research Institute Study Paper ERI #95-9,
Utah State University, Logan Utah, October 1998.
Monetary Policy and Neutrality
* Robert
Chambers and Richard Just, “Investigation of Monetary Factors on US
Agriculture,” Journal of Monetary Economics 9 (1982), pp. 235-47.
Isaac, Alan
G., and David E. Rapach. “Monetary Shocks and Relative Farm Prices: A
Re-examination,” American Journal of
Agricultural Economics (November 1997), pp. 1332-39.