Effects of Macroeconomic Policies on Sectoral Prices

The Theory of Contested Markets and the Degree of Tradedness of Agricultural Commodities: an Empirical Test in Zaire

“…First, it is clear that the classification of goods as traded or non-traded is endogenous, depending both on changes in prices and on changes in transport costs. This is in line with the findings of Mundlak et al (1990) who found that tradedness as measured on a sectoral basis in Argentina fluctuated between about 50% and 85%. Second, the range over which a good is non-traded depends on transportation costs as compared with the price differential between world and domestic production.…”

“…The case of Zaire is then examined to show that these distinctions can be verified empirically. This can be seen as a microeconomic foundation of the aggregate sectoral analysis presented by Mundlak et al (1990): the variation in sectoral tradedness that they find has its microeconomic counterpart in the differing degrees of tradedness of individual products. These results can be used to predict the effects of policy packages centred on a realignment of the real exchange rate on particular crops or activities.…”

“…Kyle (1992) analyzes the effects of input structure on the response to real exchange rate policies, and shows that it cannot be taken for granted that all agricultural commodities will respond to policy shocks in the manner to be expected of traded goods. Mundlak et al (1990) show empirically that the degree of tradability can vary substantially on a sectoral basis, both over time and as a result of policy changes. Studies of exchange rate transmission such as Pompelli and Pick (1990) show that market imperfections can affect the degree to which price and exchange rate variations are felt at the domestic market level.…”

A macroeconometric model of a developing economy

“…Easterly and Schmidt-Hebbel (1993) found that, in countries with low to medium rates of inflation, there is no relationship between long-term inflation and fiscal deficits across countries because of the different ways in which the deficit is financed (mostly through foreign aid). However, financing the fiscal deficit through foreign aid sources (partly applicable to PNG) only increases inflation (Mundlak et al 1990).…”

Plowing Through the Data

“…This is because the tradable component in agriculture is more important than in nonagriculture, and consequently the world price component in agriculture is more important than in nonagriculture. The effect of macroeconomic policies on sectoral prices is demonstrated for the case of Argentina in Mundlak et al (1990).…”