John E. Floyd

The Effects of Farm Price Supports on the Returns to Land and Labor in Agriculture

FOR the past thirty ears, a central purpose of U.S. farm policy has been to increase the income position of the agricultural sector. There has been a tendency to take for granted that a rise in the gross income of agriculture will result in an equal percentage increase in the incomes of individual farmers. Little consideration has been given to the distribution of such an increase in income among the particular resources that individual farmers own or use. This paper considers three price-support programs where output is alternatively: not controlled; controlled by acreage restrictions; or controlled by restrictions on the quantity of produce that farmers can market. It attempts (a) to make a theoretical analysis of the effects of farm price supports on the returns to land and labor in the three cases outlined above; (b) to utilize available knowledge about the magnitudes of the relevant parameters to determine the probable effects of these programs on factor returns in U.S. agriculture; and (c) to draw some conclusions about the effects of these policies on the personal distribution of income with respect to existing and prospective farmers. The analysis is based on the assumption that farmers act rationally and have reasonable knowledge of the alternative employment opportunities for the resources they own. Farm output is aggregated into a single homogeneous product. I

Real and monetary shocks to the Canadian dollar: Do Canada and the United States form an optimal currency area?

There is widespread agreement that during the floating exchange rate period from 1970 to the present Canadas nominal and real exchange rates with respect to the United States have shown considerable volatility. It has been suggested that the volatility of the real exchange rate would be substantially reduced if the nominal exchange rate with the U.S.~dollar were fixed, either through a permanent fixed exchange rate mechanism or the adoption of a common North American Currency. In all discussions of the fixed verses floating exchange rate question, it is important to understand why real exchange rates are volatile. The sources of real exchange rate volatility are the focus of our paper. Our findings are that substantial real shocks have occurred and were an important determinant of the real exchange rate. Since our results indicate that the sources of exchange rate volatility are real, not monetary, they are unfavorable to the adoption by Canada of a common currency with the United States.

Debt illusion and imperfect information

The output and employment effects of bond finance depend critically on the assumption that government bonds are regarded by the public as net wealth. This paper analyzes the possibility that debt illusion can exist because of uncertainty about the economic opportunities: there is a learning problem. In some cases, traditional wealth effects can be rationalized in terms of rational short run learning behavior. In other cases, the same general considerations may lead to responses that are opposite to those usually assumed. And policies that have short run effects in the direction conventionally assumd may, in the long rung, reverse their direction of impact, thus giving rise to critical timing problems.

Interest rates, exchange rates and world monetary policy

A Theoretical Framework.- Specifications and Assumptions.- Underlying Equilibrium Growth Paths.- Variations in Employment.- Some Important Implications.- Exchange Rate Overshooting.- Exchange Rate Determination.- Issues Regarding Exchange Rate Determination.- Time Series Properties of Observed Exchange Rate Movements.- Efficient Markets and Exchange Rate Forecasts.- The Role of Real Shocks in Determining Real Exchange Rates: The Evidence.- The Role of Money Supply Shocks in Determining Real Exchange Rates: The Evidence.- Further Evidence from a Blanchard-Quah VAR Analysis.- Implications for Monetary Policy.- The Model.- Monetary Policy and Exchange Rates.- Corroborating and Other Evidence.- Conclusions and Suggestions for Future Work.

Exchange Rate Overshooting

Thus far it has been assumed that the price of a country’s output, or the domestic price level, does not change in the short–run but will fully adjust in the long–run to its new equilibrium level. Whether this failure to adjust in the short–run is due to lack of information of producers about current changes in demand, or to costs of continually making immediate price adjustments in response to frequent and often temporary changes in demand, is of little concern – all that is necessary for validity of the analysis is that prices do not change immediately but do change eventually. Moreover, since the speed at which the relevant individuals learn about economic changes that have occurred will almost certainly vary from instance to instance, and the cost of making price changes will vary in accordance with the institutional setting and the particular industries involved, any model of dynamic adjustment paths will be dependent upon assumptions that are specific to the time and place.

Monetary Policy and Exchange Rates

Given that the monetary authorities are confident of the basic structure of the above model, know the signs but not the exact magnitudes of the parameters, and have no clear grasp over the dynamics, what is the best way for them to conduct monetary policy? Broadly viewed, the objectives of monetary policy are three in number. First, monetary growth must be such as to make the domestic price level grow at a stable rate over the long run – for developed economies that need not use an inflation tax to finance public expenditure, this inflation rate would normally be on the positive side of, but very close to, zero. Second, the stock of liquidity should, ideally, be varied around its long–term growth path in a manner that will prevent deviations of output and employment from their full–employment levels. Third, although central banks should be independent of political control, they nevertheless have to maintain public credibility – this means that they cannot appear to be creating, or allowing, unstable conditions in domestic foreign exchange and capital markets. Historically, the danger has been that this third objective might dominate the other two.

Capital Immobility, Adjustment Costs, and the Theoretical Foundations of Income-Expenditure Models

This paper reexamines traditional macrotheoretical questions in models that fully integrate conditions of production into the structure. The relative price of capital and consumer goods and the real rate of interest are required to equal the technical rates of transformation. Capital stocks are immobile between sectors, and increasing marginal costs of introducing new capital goods into the production process are assumed. Given plausible values of the parameters, standard fiscal policies may not change aggregate demand in the directions predicted by the IS-LM approach. And to judge what outcome is most likely requires considerable information about an economys structure of production.

Deficit Finance and 'First-Round' Crowding Out: A Clarification

pirical work. They have great appeal given their simplicity. We are concerned that the costs be counted along with the benefits, and that the restrictions associated with homotheticity be clearly recognized by researchers. Our results can be incorporated fairly simply into intermediate theory courses, not only providing a useful special case for clarifying a confusing topic, but also bringing the textbooks closer to work being done on the frontiers of research.

Are Canadian Interest Rates Too High

This paper examines the proposition that tight money anti-inflation policy by the Bank of Canada has kept Canadian interest rates high relative to interest rates in the United States during the past few years. It adopts an analytical framework that emphasizes the integration of Canadian asset markets with those abroad--a different perspective from that on which most contemporary policy discussions are based. On the basis of available evidence it concludes that this proposition is very difficult to defend. It also argues that, due to the problems of forecasting both future movements in the economy and the magnitude and timing of the Banks influence on it, aggressive expansionary policies in recessions like this most recent one would probably do more harm than good.

Balance of payments adjustment under the international gold standard: Canada, 1871–1913

Abstract This paper offers a new interpretation of Canadas balance of payments experience under the gold standard. A portfolio theory of balance of payments adjustment highlighting the significance of international capital flows is shown to explain the historical evidence better than the traditional price-specie-flow mechanism advocated by Jacob Viner. Adjustment occurs preeminently via transactions in the international capital market. Capital flows are not a response to domestic/foreign interest rate differentials. Canadas investment boom and capital inflow produced changes in domestic relative to foreign prices in violation of purchasing power parity. The theoretical background of the new interpretation is an extension of the monetary approach to balance of payments theory.