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Did So-Called Obama Era Regulatory Uncertainty Hurt Agricultural Equipment Investment?

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Mebbe. Sure doesn’t look like it at first glance. On the other hand, through 2018, Trump’s trade policies and associated trade policy uncertainty haven’t helped much…

Figure 1: Gross investment in agricultural equipment, in mn. $ (blue), and mn. Ch.2012$ (red), both SAAR. Quarterly real figures obtained by deflating by quadratic interpolation of annual deflator. Source: BEA via FRED, and author’s calculations.

And what about uncertainty. Using the Baker-Bloom-Davis index…


Figure 2: Gross investment in agricultural equipment, in mn. Ch2012$, SAAR (red, left scale), and economic policy uncertainty (baseline) (teal, right scale). Quarterly real investment figures obtained by deflating by quadratic interpolation of annual deflator. Source: BEA via FRED, policyuncertainty.com, and author’s calculations.

In fact, farm prices (in relative terms) seem to be a bigger determinant of agriculture equipment investment (as makes sense).


Figure 3: Gross investment in agricultural equipment, in mn. Ch2012$ (red, left scale), and log relative PPI for farm output to CPI-All. Quarterly real investment figures obtained by deflating by quadratic interpolation of annual deflator. Source: BEA, BLS via FRED, and author’s calculations.

A first differences regression of ag equipment investment on relative prices, GDP, policy uncertainty and real ten year interest rates confirms the primacy of prices (none of the other regressors have statistically significant coefficients).

Hence, relative low levels of agricultural investment (despite the investment incentives incorporated into the Tax Cuts and Jobs Act (TCJA)) can be attributed in part to the low prices for US agricultural goods; that in turn can in part be traced back to the retaliation imposed on US agricultural products (e.g., soybeans) and the strong dollar fostered by expansionary fiscal policy.

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