Multiple Exchange Rate Changes and U.8. Agricultural Commodity Prices

A model was developed to assess recent effects of exchange rate changes, inflation, and price insulation policies on real U.S. commodity prices. Exchange rate effects are defined so that they can occur and be significant under either fixed or floating rate regimes. The results indicate exchange rate effects on real U.S. commodity prices are smallest under free trade and real commodity price insulation policies but rise substantially as nominal price insulation policies become more prevalent. Key words: exchange rates, inflation, price insulation policies. The coincidence of the depreciation of the dol-lar against many foreign currencies with the rapid expansion of U.S. agricultural exports in the seventies has suggested to some econo-mists that a strong relationship exists between exchange rates and agricultural trade (Schuh). By implication, a relationship is hypothesized between the domestic prices of agricultural commodities and the relative value of the dol-lar. Empirical results, although subject to valid criticism of specification and theoretical constructs, have provided support for an ex-change rate effect but have differed with re-spect to its magnitude (Fletcher, Just, Schmitz; Chambers and Just; Johnson, Grennes, Thursby; Yandle). Our purpose is to assess the size and nature of such a relationship by developing a framework for examining the ef-fects of recent changes in the value of the dollar. A change in purchasing power is the ulti-mate source of a trade response to changes in the value of the dollar. In the early 1900s Cas-sel originated the purchasing power parity (PPP) theorm, which holds that a bilateral ex-change rate reflects the relative domestic pur-chasing power of the currencies. While not without criticism, PPP has been accepted in Keith J. Collins is an agricultural economist with the Nationa