Exchange Rates Impacts on Agricultural Inputs Prices using VAR

Abstract

The effects of the U.S. dollar exchange rate versus the Mexican peso are evaluated for four traded nonfarm-produced inputs (fertilizer, chemicals, farm machinery, and feed) in the U.S. Unit root tests suggest that the exchange rate and the four input price ratios support the presence of unit roots with a trend model but the presence unit roots can be rejected in the first difference model. This result is consistent with a fixed price/flex price conceptual framework, with industrial prices more likely to be unresponsive to the exchange rate than farm commodity prices.