Macroeconomic policies and rural development in Brazil

The objective of this study is to explore the potential for using macroeconomic policy as an instrument to promote the agricultural sector in Brazil. The basic question is, can monetary policy be used to expand agricultural output and employment in Brazil? For this purpose, it is necessary to present a brief summary of the Brazilian economy, with an emphasis on the importance of the agricultural sector, and trade. In addition, some comparisons with US agriculture are made. These basic tenets have been presented in Chapter I, the Introduction. The study proceeds as follows:; Chapter II, the Literature Review, contains a chronological exposition of relevant studies written primarily on US monetary policy and its relationship with the farm sector. It then reviews some Brazilian studies that relate macroeconomic policy to agricultural prices and exports. It also discusses some recent studies in this area.; Chapter III, the Model and Data, introduces a naive approach using a model based on the Neoclassical Production Theory, which is used to interpret the studies reviewed and to provide a means of analyzing the effects of macro policy on the agricultural output of Brazil. Furthermore, in view of the role inflation plays in the Brazilian economy, a section is devoted to evaluating possible changes in the model, when the variables are expressed in real terms. Also, a model that analyzes the effect of monetary policies on the ratio of agricultural to industrial output is presented for comparison with prior empirical work.; The Results are discussed in Chapter IV. Several forms of the agricultural output function are estimated and the role of the money supply is analyzed. Considering the crucial importance of the exchange rate on the Brazilian agricultural sector, a section discusses the monetary view of the exchange rate and how the money supply interacts with it.; The last chapter completes the study, summarizes the analysis and draws conclusions. It also makes some recommendations for further research. The model estimates suggest the exchange rate has a strong effect on the agriculture output. The monetary view of the exchange rate states that the money supply has a profound and singular effect on the exchange rate. This is the channel that translates monetary policy into agricultural output. Therefore, monetary policy affects agricultural output in Brazil indirectly, through the exchange rate.