Macroeconomic Factors Behind the Fall in Farm Interest Rates

by Paul Sundell

Interest rates on agricultural loans are determined by factors primarily outside of the agriculture sector in national and international credit markets. This report discusses the macroeconomic factors behind the fall in agricultural interest rates in 2001 and the farm interest rate outlook for 2002. The author found that the sharp easing in monetary policy and lower business credit demand were primarily responsible for the fall in interest rates. The fall in interest rates was also aided in the second half of 2001 by a rise in the consumer savings rate, a moderate fall in short-term inflationary expectations, and a loosening of foreign monetary policies.

Keywords: Nominal interest rate, real interest rates, credit markets, Federal Reserve Flow of Funds Accounts, inflationary expectations, monetary policy

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