The classic modern article on exch:tnge rate impacts on agriculture in the United States was written by G. Edw:~rd Schuh and pub- lished in the Anieuic,cirl Jo~irrlcil c?f'A~ric.ulturril Ec~orzomic,.~ in February 1 974.

Schuh niade the fundamental argument that the exchange rate was an omitted variable in the econornic anal- ysis of the U.S. farm sectol and he drew sweeping implications.

Tlirouglio~~t the 1950s, the "farm problem" had been described as one of technical change that induced a shift in production toward land-augmenting interme- diate and capital inputs. lowered the real prices at which agricultural products could be pro- cured, and p~~t severe adjustment pressure on the farm sector, particularly farm labor.

Agri- cultural policy interventions of the time (high support prices and land retirements) were per- ceived to overvalue agricultural I-ewurces rel- ative to free markets, leading to welfare costs and the paradox of a co~rntry with an advanced agriculture being dependent on export subsi- dization instead of being competitive in world markets.

Schuh argued for a new interpretation of these developments: The U.S. dollar had become overvalued in the early 1950s, which had depressed agricultural prices and exports.

This led to a socially inefficient crt~cl't-\~aluu- tiorz of agricultural resources.

It induced even more technical change.

thus aggravating what would have been in any case a serious prob- lem of structural adjustment.

It resulted in a larger share of the benetits of technical change going to consumers rather than producers.

Ac- cording to this interpretation.

farm policies had served to offset negative exchange rate impacts on the farm production sector.


When those farm policies started to shift in the 1960s toward letting prices fall and compensating fttrmers with direct cash payments instead of high price supports, prices fell toward the dis- equilibrium levels associated with exchange rate overvaluation.

Devaluations in the 1970s restored the dollar to a more nearly equilibri- urn value, and as a consequence, agriculture experienced a macroeconomic-led boom.

As Schuh put it: "If this interpretation is correct, an important share of the rise in agricultural prices in mid-1973 is a result of monetary phenomena which induced an export boom in an economy that was already responding to expansive monetary policies, and in the case of agriculture, increased the foreign demand for U.S. output at the same time that this de- mand was already rising from temporary bad weather conditions in other countries and a temporary decline in the Peruvian fishmeal in- dustry" (p. 12).


Schuh's initial exposition of the effects of an exchange rate overvaluation on markets was based on a simple partial-equilibrium framework.

For a small exporting country fac- ing fixed world prices, an overvalued ex- change rate lowers the world price in dornestic currency proportionately.

The resulting in- creases in domestic demand and reductions in domestic supply depend on own-price elastic- ities and export quantity and value fall.

In the large-country case, foreign and domestic pric- es diverge again by the extent of the over- valuation, with elasticities of supply and de- mand of both trading partners affecting the extent to which the domestic price falls or the foreign price rises.

In this framework, focus- ing on the long run, Schuh made rather modest claims for the sustained price effects from de- valuation.

In a reply to a comment on his ar- ticle, he argued that if a devaluation of 13% constituted an equilibrium, the relative price of agriculti~ral products might rise by around 10%. " after adjustments have worked them- selves out" (Schuh 1975, p. 699).


We now use a much richer microeconomic framework to assess exchange rates and mar- ket equilibrium.

Drawing on trade theory, the real exchange rate I \ viewed as the relative prices of traded to nontraded good\. Real ex- change rate Inovements accornrnodate changes in technology, income levels, or borrowing from abroad that require either higher or lower relative prices of nontraded goods (apprecia- tion or depreciation, respectively) to clear those market\. Thi\ i \ different fi-orn affecting a country's terms of trade: real exchange rate movements affect flexible prices of imports and exports in a symmetric way, and a lot of individual prices are changing (and may need to be accounted for) when the real exchange rate is considered.


The linkage of real exchange rates to in- ternational capital flows (with these flows driving goods and services trade more than the other way around) is also well understood, as is the interdependence this creates between countrie\' macroeconomic polices.

There re- main disagreements about the effectiveness of monetary and fiscal policie\ and about how to rnanage domestic and international constraints, but Sewer and fewer countries seem tempted to Haunt the evident linkages.

Europe has gone so far as to harrnoni~e monetary and fiscal policie5 enough to su\tain the euro as a unified currency-a rather large step back to a Bretton Woods type of arrangement, and one that might have been unthinkable without the rel- ative stability in exchange markets from 1988 ciated in the 1980\, did tight monetary policy to 1996.

It is appealing to think that monetary ef- icy for agriculture.

Did loose monetary policy fects on agricultural prices and trade can bc cause flexible prices (like those for agricultural measured easily with small dynamic models if products) to overshoot their long-run equilib- these effccts are important, but such measure- rium levels, rising relative to more slowly ad- ment has turned out to be a fairly difficult task.

justing (sticky) prices in other sectors? Did I could detect little effect from the money SUP- this account for the price boom in agriculture ply on real U.S. agricultural prices o r export that Schuh had identified with the exchange values in recursive vector autoregressive rate?

Later, when int'lation was being squeezed (VAR) models (Orden 1986a,b).

Shocks to ti- out of the U.S. economy and the dollar appre- nancial rnarket variables, such as a short-term Orrlrtl: El\-c,hrrnge Kate Effrcts 307 interest rate or the exchange rate, had lalger impacts.

These shocks explained 20% of fore- cast error variance for exports and 10% for real agricultural prices I year ahead, and over 50% and 25%.

respectively, for a three-year forecast horizon.

An increase in the interest rate or the appreciation of the dollar had a de- pressing effect on agriculture.


The dynamic re- sponses to \uch shocks (which were highly correlated) looked plausible for a monetary contract~on.

Sim\ ( 1980, 1996) has remained skeptical of this interpretation, arguing that in- terest rate shocks more likely come frorn real events.

but other macroeconomists have adopted the view that monetary policy shocks \how up in small dynamic models through in- terest rates (Lane).


Bradshaw and Orden pursued the modeling of exchange rate effects on agriculture in a narrow sense.

We comparecl the out-of-sample forecasting performance of univariate models of monthly U.S. corn, wheat. and soybean ex- port sales with forecasts from bivariate models that included the exchange rate.

The idea was to test Schuh's exchange rate hypothesis in a tightly \pecified model.

If the exchange rate mattered, we hypothesized, it would help pre- dict subsequent export sales.

We found that our best bivariate forecasting ~nodels outper- formed our best univariate models in statisti- cally significant ways, but we would not have found that result if we had limited our search to models specitied with a common lag slruc- ture, often a standard procedure in dynamic time-series modeling.


Orden and Fackler went in a different di- rection to develop further evidence on mone- tary impacts.

We specified a nonrecursive structurally identitied nod el of oil prices, sup- ply and demand for aggregate output, money supply and demand, international effects (rep- resented through the exchange rate), and ag- ricultural prices.

Short-run responses to the money supply shock looked plausible: money and output rose first, the dollar depreciated, and the price level increased slowly.

We con- cluded that monetary shocks raised real agri- cultural prices for about 1 year, but our em- pirical estimates also led us to conclude that monetary policy shocks had not been the dom- inant source of agric~~ltural price instability.


Within macroeconomics, the magnitude of monetary effects on real exchange rates and trade continue to be assessed.

Eichenbaum and Evans found relatively little monetary effect on the cxchange rate, while Prasad reported that nominal shocks explain a significant frac- tion of short-run real exchange rate variability and have short- and long-run effects on the real trade balance.

Building on Lane's open- economy model with a sticky-price sector, Fisher and Huh specified VAR models for real output.

the real exchange rate, and the real trade balance for each of the G-7 countries.

They imposed restrictions identifying a struc- tural model with a supply shock as the only source of long-run output effects, a demand shock with possible contemporaneous and short-run effects on output, and a monetary shock with lagged, but not permanent, o~~t p u t effects.

Fisher and Huh found that positive monetary shocks cause depreciation and im- provement in the real trade balance and that monetary shocks explain a substantial propor- tion of the forecast error variance for these real variables.


In terms of monetary impacts on ngricul- ture, Dorfman and Lastrapes and, most re- cently, Saghaian, Reed. and Marchant have also brought developments in identifying time series n~odels to bear on the measurement of relative price effects.

Dosfman and Lastrapes imposed the theory-derived long-run restric- tion of monetary neutrality to identify policy shocks and used Bayesian techniques to in- vestigate the sensitivity of their results to var- ious aspects of model specification.

Their identifying restriction insured that price level.

sectoral prices, and money rose equip]-opor- tionately in the long run.

They found plausible short-run monetary policy impacts on interest rates, output, and price level.

Again, monetary shocks raised real agricultural prices in the short run but explained only a small fraction of crop and livestock relative price variability.


I now return to the relatively narrow task of evaluating exchange rate effects on agricultur- al trade and prices directly, without specifi- cation of an underlying structural model of monetary shocks.

Figure 2 traces monthly movements of the real values of U.S. agricul- tural exports ancl imports (in billions of dol- lars) from October 1975 through September 2001 using time series provided by the Eco- nomic Research Service of the U.S. Depart- ment of Agriculture.

Co-movements of the ex- change rate (Figure 1) and the real export value are apparent: turning points in the direc- tion of the export value correspond to those of the exchange rate, and exports rise with de- preciation and fall with appreciation.

Price and quantity effects reinforce each other for export value (e.g.. depreciation raises dollar prices and increases export quantities), whereas for irnport value these effects work against each other (e.g., depreciation raises dollar prices and lowers irnport quantities).

Thus, it is not surprising that import value shows less co- movement with the exchange rate.


Basic ecoriometric estimates confirm the visilal impression from Figures I and 2.

In a monthly VAR model of the exchange rate and the export value.

the exchange rate shocks can be interpreted to convey ~nacroeconornic ef- fects.

while agricultural export shocks reflect principally sectoral developments.

The ex- change rate appears essentially exogenous (shocks to the exchange rate show little con- temporaneous correlation with shocks to ag- r i c~~l t u r a l export value, and these "own" shocks explain over 985% of exchange rate forecast error variance for a 24-nionth hori- zon).


Exchange rate shocks also have explan- atory power for agricultural export value: they explain nearly 10% o f its forecast error vari- ance for a 6-month horizon, nearly 20% for a 12-month horizon, and 35% for a 24-month hori7on.

The dynamic responses of esport val- ue to exchange rate and export shocks are shown in Figure 3.

Sectoral shocks show somewhat of a cyclical pattern over 2 years.

while an appreciation of the dollar lowers the export value.

The exchange rate impacts ap- pear to be significant after a lag of 4 months and then have an increasing cumulative effect throi~gh 24 months


In a similar model of ag- ricultural import value, the exchange rate again appears essentially exogenous, hilt ex- change rate shocks explain less than 2% of forecast error variance of imports through 24 months ahead.

Thus, they have essentially no explariatory power in the rnodel for this side of aggregate U.S. agricultural trade.


Turning to exchange rate effects on agri- cultural prices, Xu and Orden provide some microeconomic evidence that is supportive of the dichotomy between flexible commodity prices and sticky industrial prices.

Extending an analysis by Cartel; Gray, and Furtan, Xu and Orden examined the pass-through of quar- terly Canadian1U.S. currency movements to prices of traded agric~~ltural outputs and non- Exchange Rate Shock Export Shock Evidence that the L20P holds more strongly for farm outputs than for inputs is consistent with a fixed-price/flex-price conceptual frame- work with farm commodity prices being Inore responsive to the exchange rate than industrial prices.

For Canada and the United States. the output price increases associated with a de- valuation are not completely offset by increas- es in input prices.

Thus, farmers in Canada and the United States are affected by different production incentives when currency revalua- tions occur.

Consider the effects of the Canadian1U.S. exchange rate on output versus input prices for the I 0-year period 1990- 199 1 to 1999-3000.


During this period. the Canadian dollar depre- ciated by 27.6%;, but farm machinery prices in Canada rose relative to those in the United States by only 4.5%.

With the LOP holding approximately for farm outputs, Canz ' 1 d' lan ver- sus U.S. prices of wheat. soybeans, corn, feed- er steers, and slaughter steers relative to farm machinery prices rose from 20.9 to 34.9%).

Agricultural output prices in Canada and the United States were also subject to substantial common fluctuations over this period, and the depreciation-related higher prices of the farm- produced outputs raised the costs of slaughter steer production in Canada.

However, the lack of exchange rate pass-through to farm ma- chinery prices compared with farm outputs means that depreciation provides some posi- tive price incentives in Canada.

With nominal and real depreciation tracking closely, farm output prices also rose relative to the costs of nontraded inputs or a broad index of the price level, again providing a positive production incentive.


The analyses dexribed above suggest that real exchange rate movements matter to agricul- ture: they are not always dominant, but they can be.

Appreciation of the dollar is observed to create agitation for protection and govern- 310 Jourrzul of Agri~.ult~trcil mzd Applied Econonzic.~, Augu.tr 2002 ment support for trade sectors across indus- Consider the case of the United States and tries and periods.

Antidumping complaints the European Union.

Under a strong FAIR from the U.S. steel industry-an industry Act, the European Union would find itself us- whose evolution to a capital-intensive c o n - ing acreage controls to sustain its farm policies petitive sector parallels that of agriculture- while the United States pursued markct-driven are a reminder of the political pressures cur- production levels unfettered by annual ]and rency movements engender.

Calls for a use restrictions.

This situation would reverse lower-valued dollar have been echoed recently the previous relative effects on the competi- across Inany trade-dependent U.S. industries.


tiveness of policies in the two blocs, where In agriculture, the 1996 Federal Agricul- from 1980 through 1995 the United States turd Improvement and Reform (FAIR) Act used supply controls and the European Union, has suffered a near-death experience since for the part, did not, ~h~ E~~~~~~~ 1998.


The wounds may prove fatal as 4 years union would be placed at a colnpetitive dis- of injections of substantial additional support advantage by the new mix.

simulta- beyond that included in the 1996 legislation neOusly, the united states would be positioned gives way to a new farm bill in 2002.


Farm to press the E~~~~~~~ union i n international bill proposals include new permanent counter- negotiations increase market access and dis- cyclical support programs providing billions cipline domestic and export subsidies.


s u c h of dollars in subsidies.

Loan rates may be action include giving up the raised, and acreage base and/or yield updating World Trade Organization exemptions for in the new bill could further undermine the with tied to production d e c o u~l i n g of farm from production controls, since the United States would no Ion- decisions.


Thus, the strong appreciation of the ger be using these exempted policies.

The Eu- d o l l a~ which has pLlshed u.S. prices down and ropean Union has reasons of its own to move helped to set the stage for the enactment of toward decoupling and subsidy reductions as added support, is proving detrimental to farm it tries to accommodate expanded mernber- policy by undermining reform in the United ship.


Thus, convergent influences might cul- States.


minate in further movement


T h i s paper has e x a m i n e d t h e cluestio~l o f e x - c h a n g e rate effects o n agriculture raised force- fully by G. E d w a r d S c h u h s o m e 25 years a g o , w h e n a n e w e r a of flexible e x c h a n g e rates a n d international capital rnobility e m e r g e d world- wide.

E x c h a n g e rate m o v e m e n t s detestnine t h e w e d g e between the d o m e s t i c a n d foreign pric- e s o f a traded g o o d .

M o r e generally, they s e r v e a n equilibrating role w h e n m a r k e t s re- quire a systematic m o v e m e n t in the relative prices o f traded a n d nontraded g o o d s .

E x - c h a n g e rate rnovenients d e p e n d o n internation- al capital flows a n d the m a c r o e c o n o m i c fac- t o r s d e t e r m i n i n g t h e s e f l o w s , i n c l u d i n g monetary policy.

M o n e t a r y s h o c k s h a v e non- neutral effects that explain s o m e o f t h e vari- ability in agricultural prices.

Moreover, mac- roeconomic conditions a r e often decisive in t h e determination of d o m e s t i c agricultural po- lices and, hence, levels of c o~n p e t i t i v e n e s s in world markets a n d tension in trade relations.

T h e s e structural policy implications o f ex- c h a n g e rate movements.

a l o n g w i t h their direct effects o n markets at a n y given m o m e n t in time, a r e w h y e x c h a n g e rates are important t o agriculture.


The effects of the exchange rate, the U.S. agricultural price, the domestic income, and the interest rate on the U.S. net farm income are investigated in a cointegration framework.

For this purpose, the Phillips-Hansen fully-modified cointegration (FM-OLS) procedure is applied to annual data for the period 1957–2008.

Results suggest that there exists the long-run equilibrium relationship between the U.S. net farm income and the selected macroeconomic variables.

We also find that the exchange rate and U.S. agricultural price are more important than other variables in determining the U.S. net farm income.

Changes in the macroeconomy have significant effects on the performance of the U.S. agricultural economy.

During the period 2003–2007, for example, the U.S. and global economies had been experiencing strong growth.

Over this period, the real U.S. gross domestic product (GDP) grew by nearly 3% annually.

The rest of the world (less United States) witnessed approximately 4% of the annual real GDP growth rate during the same period, exceeding the annual growth rate of 2.5% during the 1990s (Figure 1).

The U.S. agricultural sector benefited from rising economic prosperity, which resulted in growth in U.S. agricultural exports to record-high levels and historically high agricultural commodity prices (Figure 2).

In addition, significant growth in the use of farm commodities (i.e., corn) for biofuel production contributed to record or near-record commodity prices in recent years.

With double-digit growth rates since 2002, for example, production of fuel ethanol reached a record high of 9.2 billion gallons in 2008, more than 40% increase over 2007.

As a result, corn prices climbed up to $4.78 per bushel in 2008, a 43% increase from the average of the past 15 years.

The combination of these factors contributed to growth of 43% in the U.S. net farm income during the period 2003–2007 ($60.5 billion in 2003 and $86.8 billion in 2007) (Figure 3).

Since 2008, however, this expansion trend has changed dramatically as the financial crisis quickly spread throughout the U.S. economy and the rest of the world, thereby pushing many U.S. trade partners into recessions by the second half of 2008.

As a result, the U.S. Department of Agriculture (USDA) projects that U.S. agricultural exports could decline from $115 billion in 2008 to $96 billion in 2009; in turn, the U.S. net farm income is forecast to plunge as much as 33% (around $60 billion) in 2009 [1].

Given the dependence of U.S. agriculture on the macroeconomy, it is important to fully understand the macroeconomic factors that contribute to the ever-changing pattern of the U.S. farm economy.

Over the past decades, many scholars have attempted to investigate the main factors linking U.S. agriculture to the macroeconomy (e.g., exchange rates, interest rates, and income growth patterns), which is referred to as the agriculture-macroeconomy nexus [2][3][4][5][6][7][8].

These studies can be generally summarized as follows: (1) their empirical focuses have been typically on the impacts of macroeconomic variables on trade/prices; and (2) their attentions have mostly been on analysis of the short-run adjustment process of U.S. agriculture associated with changes in macroeconomic variables.

Until recently, however, few studies have considered the effects of macroeconomic variables on the U.S. farm income.

To our knowledge, Baek and Koo (2009) is the only study that has attempted to address this issue [9].

They use an autoregressive distributed lag (ARDL) model to examine the short- and long-run effects of changes in macroeconomic variables on the U.S. farm income.

They conclude that the commodity price and interest rate are significant determinants of the U.S. farm income in both the short- and long-run, while the exchange rate is a significant factor only in the long-run.

However, their time-series analysis includes agricultural GDP as a proxy for the U.S. net farm income.

This could be problematic because the two series differ in measuring farm income; e.g., gross value added (agricultural GDP) versus net value added (net farm income), and thus agricultural GDP could be vastly different from net farm income.

Net farm income is a value of production measure, indicating the farm operators’ share of the net value added to the national economy within a calendar year; in other words, net farm income is defined as the difference between value of agricultural sector production and total production expenses (costs) [10].

Further, given that empirical results are contingent on the accuracy of the measures of the U.S. farm income, it is crucial to incorporate net farm income, instead of agricultural GDP, when examining macroeconomic effects on the U.S. farm income.

Only in so doing, we gain a better understanding and thus more accurate assessments of the nature of these relationships.

The objective of this paper is thus to re-examine the dynamic relationship between the U.S. farm income and macroeconomic variables.

To address this issue adequately, unlike previous studies (i.e., Baek and Koo, 2009), we use the most appropriate measure of the U.S. farm income available, that is, the U.S. net farm income, and attempt to identify the long-run equilibrium relationships between U.S. net farm income and macroeconomic aggregates, such as exchange rates, interest rates and income, and agricultural variables, including commodity prices and input prices.

For this purpose, using annual data for the period 1957–2008, we adopt the fully-modified cointegration technique (FM-OLS) developed by Phillips and Hansen (1990) [11].

Since the FM-OLS is less sensitive to changes in lag structure and performs better for small or finite sample sizes than other cointegration techniques (e.g., Engle and Granger, 1987; Johansen, 1988), this approach is a fully efficient method of estimating long-run equilibrium relationships among the selected variables [12].

The remaining sections present analytical framework, empirical methodology, empirical findings, and conclusions.


Changes in macroeconomic variables have direct and indirect effects on the U.S. farm sector [13].

The direct effects primarily come from demand and supply side changes within the U.S. economy.

Specifically, on the demand side, changes in the U.S. real income (GDP) often dramatically impact the agricultural economy.

A decrease in the U.S. GDP, for example, is likely to decrease demand for agricultural goods through the decreased purchasing power of U.S. consumers, which, in turn pushes down agricultural commodity prices and thus farm income.

On the supply side, on the other hand, since U.S. agriculture is a highly capital-intensive industry, changes in U.S. financial markets (i.e., interest rates) significantly influence agricultural markets through the changing costs, influencing investment decisions and interest rate risk.

A decrease in interest rates, for example, reduces a farmer’s cost of borrowing money for short-term production (operating) costs (e.g., fertilizer, seed, and livestock expenses) and long-term capital investments (e.g., land, machinery, equipment, and inventories), thereby resulting in a positive effect on farm income.

By contrast, the increasingly unexpected and adverse movement of interest rates could be a source of operating risk for farmers and agribusinesses.

A sudden spike in interest rates, for example, is likely to reduce profitability of farms and investment through the increased interest expenses, thereby resulting in a detrimental effect on farm income.

The indirect macroeconomic effects on agriculture mainly originate from their impacts on exchange rates and energy prices (which are fluctuating as changes in U.S. and world economic activities occur).

According to economic theory, for example, a decrease in U.S. interest rates relative to foreign interest rates causes the demand and value of the U.S. dollar to decrease (depreciation) as foreign investors tend to invest in alternative assets (e.g., foreign government securities).

The depreciation of the U.S. dollar makes U.S. agricultural goods more competitive in both domestic and foreign markets through a decline (rise) in exports (import) prices, thereby contributing to higher farm income.

A decrease in U.S. GDP, on the other hand, leads to a decline in world economic growth, which, in turn causes energy prices (i.e., crude oil prices) to fall.

Generally, the drop in energy prices has a negative demand-side effect and positive supply-side effects on farm income [13].

A decrease in energy prices tends to reduce the costs of production through decreases in the prices of energy-based agricultural inputs (e.g., fertilizer, diesel, and agricultural chemicals), thereby resulting in a positive effect on farm income, known as a positive supply-side effect.

Lower energy prices (i.e., crude oil prices), on the other hand, may lead to significant decline in the use of farm commodities (i.e., corn) through decreased biofuel production, which, in turn pushes down commodity prices to a level that more than offsets the decrease in production costs resulting from lower energy prices, thereby having a negative effect on farm income, known as a negative demand-side effect.

As such, the fall in energy price may not affect the U.S. farm income uniformly.


We adopt the FM-OLS procedure developed by Phillips and Hansen (1990) to examine dynamic interrelationship between the U.S. net farm income and macroeconomic factors [11].

The FM-OLS method uses an econometric model as follows: zt = a + b'xt + et where zt is an I(1) variable (i.e., zt=FYt); and xt is a (k × 1) vector of I(1) regressors (i.e., xt =[Pt, GDPt, ERt, IRt]), which are assumed not to be cointegrated among themselves.

In addition, it is assumed that xt has the following first-difference stationary process: Dxt = m + vt where m is a (k × 1) vector of drift parameters; and vt is a (k × 1) vector of I(0), or stationary variables.

Finally, it is also assumed that xt = (et,vt')' is strictly stationary with zero mean and a finite positive-definite covariance matrix S. The OLS estimators of a and b' in Equation (1) are consistent even if xt and et (equivalently vt and et) are contemporaneously correlated [12].

In general, however, the OLS regression involving nonstationary variables no longer provides the valid interpretations of the standard statistics such as t- and F-statistics in Equation (1).

Further, unless nonstationary variables combine with other nonstationary variables to form stationary cointegration relationships, the estimation can falsely represent the existence of a meaningful economic relationship (i.e., spurious regression) [14].

To address these problems adequately, it is required to correct the possible correlation between vt and et, and their lagged values.

The Phillips-Hansen fully-modified ordinary least squares estimator takes account of these correlation in a semi-parametric manner.

As a result, the FM-OLS is an optimal single-equation technique for estimating with I(1) variables [15].

The macroeconomic aggregates and agricultural factors described earlier are employed to guide the selection of variables for the cointegration analysis.

Since the main focus of this paper is the explanation of variations in the U.S. net farm income (FYt), variables that are considered to be of central importance in affecting the U.S. net farm income are selected for inclusion in our empirical model as follows: FYt = f(Pt, GDPt, ERt, IRt) where Pt is the agricultural price; GDPt is the real U.S. income; ERt is the exchange rate; and IRt is the interest rate.

Equation (3) can be specified in a log linear form as follows: ln(FYt) = a + b1ln(Pt) + b2ln(GDPt) + b3ln(ERt) + b4ln(IRt) + et Note that the agricultural price (Pt) here is defined as the ratio of the commodity price to the input price, providing an indication of the change that has occurred in the prices farmers receive for their commodities relative to the change in the cost of inputs, referred to as the agricultural output-input price ratio.

When this ratio is greater (less) than 1.0, it indicates that farm commodity (input) prices increase at a faster rate than farm input (commodity) prices, thereby having a positive (negative) effect on farm income; hence, it is expected that b1 > 0.

Since an increase in U.S. income leads to an increase in demand for agricultural products and boosts farm income, it is expected that b2 > 0.

As to the effect of exchange rates, it is expected that b3 < 0, since the depreciation of the U.S. dollar causes an increase in exports of agricultural goods and thus farm income.

Finally, it is expected that b4 < 0 since a rise in interest rates have a negative effect on farm income through the increased production costs and interest rate risk.


Our data used for the analysis contains 52 annual observations for the period 1957–2008.

The U.S. net farm income is obtained from the Economic Research Service in the USDA.

The prices received index for all farm products and prices paid index for commodity, services, interest, taxes and wage rates on the 2005 base (2005=100) taken from the National Agricultural Statistics Service are used proxies for agricultural commodity prices and input prices, respectively.

The U.S. agricultural price used in Equation (1) is then defined as the ratio of prices received index to prices paid index.

The U.S. real gross domestic product index (2005 = 100) is used as a proxy for the real income of the United States and is obtained from the International Financial Statistics (IFS) database published by the International Monetary Fund.

The effective federal fund rate is used as a proxy for U.S. interest rate and is obtained from the Board of Governors of the Federal Reserve System.

The exchange rate is the trade-weighted (effective) exchange rate (2005 = 100) and is collected from the IFS.

Since the exchange rate is expressed as the number of trading partner’s currency per unit of the U.S. dollar, a decline in exchange rate indicates a real depreciation of the U.S. dollar.

The GDP deflator (2005 = 100) obtained from the IFS is used to derive real values of U.S. net farm income.

Finally, all variables are in natural logarithms.


The first requirement for the use of the FM-OLS cointegration procedure is that the variables in Equation (4) must be nonstationary I(1) processes.

The presence of a unit root in the five variables is tested using the augmented Dickey-Fuller (ADF) test [16] and the more recent Dickey-Fuller generalized least squares (DF-GLS) test [17].

The results show that, for the level series, the ADF and DF-GLS tests fail to reject the null of nonstationary for all the five variables at the 5% level (Table 1).

For the first-differenced series, on the other hand, the results of these tests indicate that all the variables are stationary; thus, we conclude that all the variables are nonstationary I(1) processes.

Both unit root tests include deterministic components of an intercept and a trend.

It should be pointed out that, since the FM-OLS is a single-equation cointegration procedure, it is essentially valid in the presence of a single cointegration vector.

As a preliminary investigation to identify the number of cointegration vectors, therefore, we employ the widely used Johansen multivariate cointegration procedure [18] using the same set of variables.

The results of rank tests show that, with a lag length of one (k = 1) and an unrestricted constant and a linear trend, the trace statistics reject the null of no cointegrating vector (r = 0), but fail to reject the null of one cointegrating vector (r = 1) at the 5% significance level (Table 2), suggesting the existence of a unique long-run relationship among the five variables.

With one identified cointegrating vector, the test for long-run exclusion is then conducted to examine whether any of the five variables can be excluded from a cointegrating vector.

The results show that all five variables are statistically relevant to the cointegrating space and cannot be excluded from the long-run relationship.

Finally, using the relevant long-run coefficients (b1) estimated by the Johansen method and normalizing on the U.S. net farm income (FYt), the signs and magnitude of other four variables (Pt, GDPt, ERt, and IRt) in the long-run relationship are consistent with those estimated using the FM-OLS estimator.

From these findings, therefore, the use of the FM-OLS cointegration analysis can be justified to estimate Equation (4).


With strong evidence that each of our data series is nonstationary I(1) processes, the FM-OLS is applied to estimate the long-run cointegration relationship in Equation (4).

The results of the ADF and DF-GLS tests performed on the residuals from the estimated Equation (4) show that the null hypothesis can be rejected at the 5% level (Table 3).

This suggests the existence of long-run relationship between FYt and the set of explanatory variables (Pt, GDPt, ERt, and IRt) in Equation (4); in other words, even though individual series may have trends or cyclical or seasonal variations, the movements in one variable are matched (at least approximately) by movements in other variables [19].

Additionally, the results show that all estimates are statistically significant at the 5% level and have the expected signs (Table 3).

A positive coefficient of the agricultural output-input price ratio on the net farm income suggests that, in the long-run, U.S. farm income goes up as agricultural commodity prices increase at a faster rate than agricultural input prices.

A negative coefficient of the exchange rate on the net farm income indicates that the weakening U.S. dollar makes the price of U.S. agricultural goods more competitive abroad and leads to an increase in U.S. agricultural exports, thereby boosting the farm income.

In fact, since U.S. agriculture is a heavily trade-dependent sector, agricultural trade is a significant contributor to the U.S. farm economy; during the period 2000–2007, for example, the farm share of U.S. economic activity generated by agricultural exports ranged from 26% to 41%.

A positive coefficient of the real GDP on the net farm income implies that a rise in real domestic income leads to an increase in demand for agricultural goods through the increased purchasing power of U.S. consumers, thereby enhancing the farm income.

Finally, a negative coefficient of the interest rate on the net farm income suggests that an increase in interest rates have a significant adverse effect on the farm income through the increasing costs and interest rate risk.

It should be pointed out that among the macroeconomic factors, the exchange rate is more pronounced than the real GDP and interest rate in determining the U.S. net farm income (Table 3).

For example, a 1% decrease in the exchange rate causes the farm income to increase by approximately 0.84%, while the farm income increases by only 0.14%, given a 1% increase in the real GDP.

The most likely explanation for a relatively smaller income effect is that, since U.S. consumers spend a small portion of their disposable income for food and have a sufficiently high standard of living, demand for agricultural goods may not be sensitive to changes in real income; in other words, the income elasticity of demand for most types of food is pretty low in the United States.

As for a weak interest rate effect, on the other hand, one plausible explanation is that farmers now have a wider range of risk management tools such as hedging, crop insurance, and forward contracts to manage financial risks and thus increase their resilience to the temporary shocks resulting from financial uncertainty.

For completeness, we also estimate the error-correction model using the residual obtained from Equation (4) in order to examine the short-run adjustment to long-run steady state, as well as to confirm the existence of the cointegration relationship.

The results show that the coefficient of the error-correction term (ect–1) is negative and statistically significant at the 5% level (Table 3).

The negatively significant coefficient of ect–1 implies that the equilibrium relationship will hold in the long-run, even with shocks to the system; with a shock to the U.S. agricultural market, for example, the U.S. net farm income adjusts by 15% to the long-run equilibrium in a year.

Additionally, the statistically significant ect–1 further supports the validity of cointegrating relationship in Equation (4).

Finally, the multivariate diagnostic tests on the estimated model as a system indicate no serious problems with serial correlation, heteroskedasticity, and normality; hence, the model is well defined.


In this paper we re-examine the main factors linking the U.S. farm income to the U.S. macroeconomy.

To address this issue adequately, we use the more appropriate framework for representing the farm sector’s income statement, that is, the U.S. net farm income, and attempt to assess the effects of the exchange rate, the U.S. agricultural price, the domestic income (GDP), and the interest rate on the U.S. net farm income in a cointegration framework.

For this purpose, the FM-OLS cointegration procedure is applied to annual time-series data from 1957–2008.

The results of the FM-OLS suggest that there is one stable long-run equilibrium relationship between the U.S. net farm income and the selected macroeconomic variables.

The negatively significant coefficient of the error-correction term in the vector error correction model further validates the existence of an equilibrium relationship among the variables.

We also find that the exchange rate and U.S. agricultural price are more powerful determinants of the U.S. net farm income than other variables such as domestic income and interest rate.


This article explores the similarities, differences, and implications from the 1970s–1980s experience for the macroeconomic dynamic that may arise from the 2008 price spike and subsequent recession.

Role of monetary policy (deviations from Taylor rule) is assessed.

This is an argument that has not been too prominent in public discourse about causes of the financial crisis or the policies undertaken to restore stability to financial markets and avoid an even deeper downturn than occurred.

The "misery index" is compared across the past and recent macroeconomic events.

Effects on agriculture of exchange rates are reviewed, effects dependent on currency values and interest rates that can change quickly and in unexpected ways.

The commodity price spike that peaked in the first half of 2008 raised the specter of high farm product prices not felt since the early 1970s, and the recession of 2007–2009 has proven to be the worst global downturn since the Great Depression.

One line of reasoning is that monetary policies played a central role in each of these periods.

The comparison is inflationary financing of the Vietnam War (leading to breakdown of fixed exchange rates) and subsequent expansionary monetary policy designed to soften the mid-1970s recession having a parallel in loose monetary policy to ease the post-9/11 downturn setting the stage for an excessive boom and the depth of the current recession.

This is an interesting but imperfect parallel.

We know from history that the 1970s policies, although perhaps easing that recession, also postponed part of the pain, which was then incurred in a dynamic of macroeconomic instability (stagflation, recession) that played out over more than a decade.

Are we in for another long period of macroeconomic instability and if so, will monetary policy be central to it? Although making macroeconomic forecasts is fraught with uncertainty, this article explores the implications that can be drawn from the earlier experience for the macroeconomic dynamic that may play out from today’s recession and the implications of this dynamic for agriculture.

These two episodes, one of which was, and one of which is likely to be, a defining set of macroeconomic events for a generation, have both similarities (for example, the previous monetary story) and important differences (for example, differences in oil sector shocks) that may affect how the macroeconomic dynamics evolve in the 2010s.

The article is organized as follows.

Section 1 reviews the arguments that emerged in the 1970s and early 1980s about macroeconomic effects on agriculture, particularly monetary policy felt through the exchange rate.

A review of these arguments, and of the econometric evidence developed about these effects, were the topic of a paper I presented at the 2002 SAEA annual meeting [1].

Further econometric evidence along these lines is developed in the Baek and Koo (2010) and Saghainan papers in this session, whereas this article is more qualitatively descriptive.

Section 2 of the article briefly reviews one main tenant of macroeconomic analysis since the late 1980s—the Taylor (2008) rule that has replaced the earlier Friedman (1953) rule as a proposed steady-growth anchor for monetary policy.

The third section returns to the issue of exchange rate effects on agriculture, reviewing two recent studies and the concern about sustainability of large U.S. current account deficits.

A few concluding observations are made about what may come next in macroeconomic dynamics and agriculture.

I can only characterize these as casual (but directed) prompts to discussion.


When the U.S. abandoned the Bretton Woods agreement on relative fixity of exchange rates in 1971, a new era of international capital mobility was launched and the rules of the game for macroeconomic interdependence among nations were altered.

Twenty years earlier, Milton Friedman had argued in his classic article "The Case for Flexible Exchange Rates" that open markets for currencies were the least disruptive mechanism for managing adjustments to changes affecting international payments [2].

That view seemed finally to have come into its time.

Yet looking back from a vantage point 35 years after the U.S. gave up its fixed exchange rate, the economic turmoil that followed the initial devaluation and subsequent floating the dollar against other major currencies was not anticipated.

The turmoil included, for the U.S., substantial inflation through the 1970s, then movements in the real exchange rate—sequential appreciation followed by depreciation during the 1980s—in excess of 40% over periods of several years’ duration.

Forty percent is a significant realignment in relative prices and several years is long enough to force economic adjustments.

Within agriculture, the "new macroeconomics" of the world economy has had substantial implications.

Nominal agricultural prices skyrocketed along with other primary commodity prices early in the 1970s with inflationary monetary policies and dollar flexibility at least partly responsible.

International capital flows expanded after two decades of slow growth.

The U.S. trade deficit turned increasingly negative, but agricultural exports, in particular exports through commercial channels, not foreign aid, rose strongly through the 1970s.

By the late 1970s, agricultural exports were up, but real agricultural prices and net farm income were down.

Things got much worse when the dollar began to appreciate beginning in 1980.

Exports fell by nearly one-third in value by 1985 and, with high interest rates, land prices could not be sustained.

In the ensuing farm financial crisis, supply control interventions and farm program fiscal costs were driven to record levels.

A view that emerged from this period of turbulence was that macroeconomic policy effects on agriculture, particularly effects delivered through the exchange rate, can swamp those of agricultural policy.

The classic modern article on exchange rate impacts on agriculture in the U.S. was written by G. Edward Schuh (1974) and published in the American Journal of Agricultural Economics in February 1974 [3].

Schuh made the fundamental argument that the exchange rate was an omitted variable in economic analysis of the U.S. farm sector, and he drew sweeping implications.

Throughout the 1950s, the "farm problem" had been described as one of technical change that induced a shift in production toward land-augmenting intermediate and capital inputs, lowered the real prices at which agricultural products could be procured, and put severe adjustment pressure on the farm sector, particularly farm labor.

Agricultural policy interventions of the time (high support prices and land retirements) were perceived to overvalue agricultural resources relative to free markets, leading to welfare costs.

A paradox was a country with an advanced agriculture being dependent on export subsidization instead of being competitive in world markets.

Schuh argued for a new interpretation of these developments: the U.S. dollar had become overvalued in the early 1950s and overvaluation had depressed agricultural prices and exports.

This had led to a socially inefficient undervaluation of agricultural resources; it had induced even more technical change, thus aggravating what would have been in any case a serious problem of structural adjustment; and it had resulted in a larger share of the benefits of technical change going to consumers rather than producers.

In this interpretation, farm policies had served to offset negative exchange rate impacts on the farm production sector.

When those farm policies started to shift in the 1960s toward letting prices fall and compensating farmers with direct cash payments instead of high price supports, prices fell toward the disequilibrium levels associated with exchange rate overvaluation.

In Schuh’s view, devaluation in the 1970s restored the dollar to a more nearly equilibrium value and, as a consequence, agriculture experienced a macroeconomic-led boom.

As he put it: "If this interpretation is correct, an important share of the rise in agricultural prices in mid-1973 is a result of monetary phenomena which induced an export boom in an economy that was already responding to expansive monetary policies, and in the case of agriculture, increased the foreign demand for U.S. output at the same time that this demand was already rising from temporary bad weather conditions in other countries and a temporary decline in the Peruvian fishmeal industry" (p. 12).

As stated in the previous summary lines, Schuh persistently tied his assessment of exchange rate effects on agriculture closely to monetary policy effects on the exchange rate.


By the early 1970s, expansionary monetary policy resulting from seeking "guns and butter" in the late 1960s without raising corresponding tax revenue made it infeasible to maintain the fixed dollar exchange rate.

Devaluing the dollar and then letting it float against major currencies induced a monetary-driven boom in commodity prices.

When a supply-side oil shock added further upward pressure to commodity prices and threatened a slowdown in the economy, a response of further monetary expansion to accommodate the supply shock created further inflationary pressure.

Whereas the traditional expectation was that inflation resulting from monetary expansion would dampen unemployment, in this case, both rose simultaneously.

A new term, "stagflation," entered macroeconomic discussion and a new measure arose in public discourse.

The "misery index" was a simple sum of the unemployment rate and the inflation rate.

Hardly a theoretical construct, the misery index nonetheless captured the new dynamic not of an inflation/unemployment trade-off, but of a cascading of undesirable outcomes.

The unemployment rate and misery index are shown in Figure 1 for the period 1970–2009.

These are indicators of performance of the economy in terms of what can plausibly be considered the two fundamental objectives of macroeconomic policy: achieving price stability and maintaining full employment.

The years 1973–1985 are an evident rough time in relation to these objectives and can be called the stagflation period in which both of these rates and their sum were persistently higher than they had previously been or have been subsequently.

Unemployment remained above 5% and the misery index remained above 10% for 13 years.

Peaks of misery (index over 15%) occur in 1974–1975 and 1979–1982.

Looking in more detail, inflation and unemployment rise simultaneously in 1974 after a sharp oil-price shock.

During 1975, unemployment rises but inflation falls and from 1976–1979, unemployment falls.

Inflation jumps up in 1979, with a second oil shock, and in 1980, inflation and unemployment again both rise.

How did agriculture fare during the stagflation period? Two basic indicators are shown in Figure 2.

The level of (deflated) net farm income is a basic performance measure.

The amount of that income coming from direct government payments is a key indicator of the agricultural policy stance.

Net farm income jumps in 1973 to what in retrospect remains an outlier of its highest value over the 40 years.

Net farm income is still well above its early 1970s level in 1974 and 1975; the 1973–1975 period is the boom Schuh attributed in part to expansionary monetary policy.

Then net farm income comes down from its peak during the next 2 years of relative macroeconomic misery, nor is farm sector performance measured by net farm income particularly strong in the midyears of the stagflation period.

The latter part of the stagflation period is associated with the tight post-1979 monetary policy designed to bring down the rate of inflation, which drops from 13% in 1979 to just 2% in 1986.

The consequences of this monetary policy are severe for agriculture: net farm income drops sharply from over $70 billion in 1979 and remains below that level for the next 9 years.

The collapse sets the stage for payments to farmers becoming much larger as a share of net income in the mid-1980s.


Not surprisingly, attention in agricultural economics turned to assessing the effects of macroeconomic instability on agriculture during the stagflation period.

The earliest attempts to evaluate Schuh’s argument empirically were conducted in a partial equilibrium spatial modeling framework.

This work focused on assessing the elasticities of price transmission and of supply and demand that affected trade of agricultural products.

The assessments seemed able to attribute only a small part of the substantial relative price movements in the early 1970s to the exchange rate—results consistent with Schuh’s long-run equilibrium claim but not supportive of the exchange rate being as significant an omitted variable as he described, at least when it came to the inflationary farm sector boom that was occurring.

Partial equilibrium spatial modeling subsequently gave way to computable general equilibrium models—models that offered a more complete linkage of real exchange rate movements to underlying causes, accounted for market equilibrium for multiple traded and nontraded goods, and provided somewhat more support for real exchange rate effects on agriculture.

On another level, the attempt to understand exchange rate impacts on agriculture became redirected, like macroeconomics itself, by the turbulence in the world economy.

Exchange rates did not settle down to an equilibrium devaluation approximately 10–15% during the 1970s, and macroeconomic policies seemed to be spinning out of control compared with the relative stability of the preceding period.

This brought attention to Schuh’s broader claim about the importance of monetary policy for agriculture.

Did loose monetary policy cause flexible prices (like those for agricultural products) to overshoot their long-run equilibrium levels rising relative to more slowly adjusting (sticky) prices in other sectors? Did this account for the price boom in agriculture that Schuh had identified with the exchange rate?

Later, when inflation was being squeezed out of the U.S. economy and the dollar appreciated in the 1980s, did tight monetary policy cause real agricultural prices to fall?

The argument that monetary policy has non-neutral effects on agricultural prices is hardly a new one (such effects had been argued forcefully by George Warren [1928] during the 1920s) [4]. With newly floating exchange rates after 1973, this nonneutrality argument was given renewed impetus by an influential model of Rudiger Dornbusch (1976) [5].

In the Dornbusch model, monetary expansions that lower domestic interest rates cause exchange rate overshooting so that subsequent appreciation maintains arbitrage conditions equating returns on domestic and foreign assets.

Several research efforts provided a basis for assessing these effects on exchange rates, and by extension on flexible agricultural prices, in traditional macroeconomic econometric models; among them were Hughes and Penson (1985) [6] and Rausser et al. ( 1986) [7].

The latter authors used results from such a model to argue that deflationary monetary policy had "taxed" agriculture significantly in the early 1980s.

Yet a third approach to empirical modeling adopted the methods of time-series analysis to seek causal relationships and dynamic impacts from monetary indicators to agriculture in small dynamic models without too many a priori restrictions.

These models provided an alternative to overidentified structures imposed either by traditional Keynesians or by the new neoclassical rational expectations school.

Early work on empirical modeling of monetary effects on agriculture by Bessler (1984) [8], Chambers (1984) [9], and myself (for example, Orden and Fackler, 1989) [10], among others, adopted this approach.

This was followed later by such papers as Dorfman and Lastrapes (1996) [11], and Saghaian, Reed, and Marchant (2002) [12], which brought additional developments in identifying time-series models to bear on measurement of relative price effects.

Dorfman and Lastrapes (1996) imposed the theory-derived long-run restriction of monetary neutrality to identify policy shocks and used Bayesian techniques to investigate sensitivity of their results to various aspects of model specification.

Their identifying restriction ensured that the price level, sectoral prices, and money rose equiproportionately in the long run.

They found plausible short-run monetary policy impacts on interest rates, output, and the price level.

Again, monetary shocks raised real agricultural prices in the short run but explained only a small fraction of crop and livestock relative price variability.

Saghaian, Reed, and Marchant (2002) developed a Dornbusch type of model that explicitly incorporated a flex-price as well as sticky-price sector.

Their theoretical results showed that overshooting in the flex-price sector dampens exchange rate overshooting.

In their empirical analysis, agricultural commodity prices and industrial prices overshoot their long-run equilibrium in relation to the money supply with agricultural prices again rising relative to industrial prices in the short run.


As shown in Figure 1, macroeconomic performance from the mid-1980s through the late 2000s is more stable than during the stagflation period.

Some macroeconomists have dubbed this period the "great moderation." One can see the basis for this claim, even if a bit of hubris now seems evident with the depth of the recession that began in 2007.

Moreover, at a global level, macroeconomic performance was not as stable during this period as shown for the U.S. [13].

Still, during the great moderation period, the misery index exceeds 10% in the U.S. only in the 3 years 1990–1992 and, for the most part, unemployment is below 5% in all years but these 2009.

One line of reasoning about the relatively good macroeconomic performance since the mid-1980s is that monetary policy has been managed with moderation.

This is illustrated in Figure 3, which shows the movement of the federal funds rate quite closely to what is called the Taylor rule.

This rule proposed by John Taylor in 1993 relates the federal funds rate to a long-run inflation target along lines of the earlier Friedman rule for stable monetary growth.

However, the Taylor rule also allows for setting interest rates countercyclically to respond to short-run deviations of real gross domestic product from a measure of potential real gross domestic product.

Taylor argues that his rule, centered around a target inflation rate of 2%, basically described behavior of the monetary authority (the Federal Open Market Committee [FOMC]).

More importantly, he argues that following this rule contributed significantly to successful macroeconomic outcomes in terms of inflation and unemployment [14].

William Poole (2007), president of the Federal Reserve Bank of St. Louis, notes several deviations by the FOMC from the Taylor rule.

For example, the rate was raised above what the rule suggested in 1989 in response to rising inflation (Figure 3) and was lowered more than the rule suggested in 1990–1991 and kept down in 1992–1994 in response to recession.

It was lowered again in 1998 compared with the level suggested by the Taylor rule in the wake of the Asian financial crisis and other financial turmoil [15].

How does agriculture fare during the great moderation period? As shown in Figure 3, agricultural income is also relatively stable after the mid-1980s compared with the stagflation period.

In that sense, one might say that agriculture shares in the relative calm and prosperity that is reflected in the macroeconomic indicators.

During the worst episode for the misery index during this period, agriculture is not adversely affected.

Conversely, agriculture suffers a relative downturn during 1998–2002 with net farm income held up by a substantial increase in government payments.

The financial crisis in Asia and slowdown in the world economy contributed to this agricultural downturn on the demand side.

However, the U.S. misery index is at its lowest ebb during these years.

After 2001, a substantial deviation from the Taylor rule is evident in Figure 1 with monetary policy more expansionary than the rule suggests as a guide.

This followed the disruption of 9/11.

Taylor acknowledges that the monetary authorities were very clear that they were pursuing a discretionary policy to address a fear of adverse effects from deflation.

To Taylor, "there was no greater or more persistent deviation of actual Fed policy since the turbulent days of the 1970s." He subsequently has argued that this monetary excess was "the main cause of the boom and the resulting bust" that followed.

The loose monetary policy during this period induced the housing boom (a phenomenon also observed in the 1970s).

Not only did low interest rates directly spark higher asset prices, but also indirectly those low rates induced lower default rates and more risky lending practices.

Worldwide, the U.S. policy contributed to lower interest rates as well, and internationally interest rates correlated negatively across countries with the extent of their housing boom.

When interest rates were raised starting in 2004, it marked the end of the boom period.

Because that boom had been excessive as a result of loose monetary policy, the bust that followed was also too severe.

Taylor’s argument for the centrality of monetary policy does not end there.

Rather, he argues the initial responses to the crisis were misdirected toward increasing liquidity rather than recognizing that increased risk was the central issue.

Furthermore, when interest rates were lowered very sharply between August 2007 and April 2008, it induced a sharp depreciation of the dollar and contributed to the large increase in oil prices.

For a brief time, it appeared that stagflation might return—that inflation would pick up even while the economy slowed and unemployment rose.

However, events have not played out that way.

The commodity price spike in 2008 subsided with the depth of the financial collapse that occurred.

Even with the extraordinary measures taken by the Federal Reserve to stabilize the financial sector, inflation also subsided.

Unemployment rose to its highest level since 1982, but the misery index is still below the level that occurred during that year from the stagflation period.

It remains below its 1990–1992 peak level from within the great moderation period.


The preceding section has brought up to date the argument about the key role of monetary policy that Schuh emphasized in his assessments of exchange rate impacts on agriculture.

I do not mean to argue that this has been the dominant line of macroeconomic reasoning during the turmoil since 2007.

Clearly a substantial debate will now ensue in macroeconomics about the wisdom of the extraordinary measures the Federal Reserve has taken, the risk of deflationary damage to the economy that existed or was avoided.

Importantly, this debate will address the stance of monetary policy as the economy picks up and whether appropriate steps are taken to avoid an upturn of inflation [16].

As these arguments are made, and how ever events unfold, it is evident that on a basic level, Schuh’s emphasis on exchange rate effects on agriculture has become part of mainstream assessments for this sector of the economy.

Here, I call attention to two recent studies, one an ex post evaluation of causes of the sharp run up of agricultural and other commodity prices in 2007–2008 and the second an ex ante evaluation of projected agricultural performance under alternative global macroeconomic scenarios.

In the first study, Abbott, Hurt, and Tyner (2008) put substantial weight on the depreciation of the dollar as an explanation of the high dollar-denominated agricultural and oil prices in 2007–2008 [17].

Specifically, they show that dollar-denominated prices rose quite a bit more than prices denominated in real Euros or the USDA index of real foreign currency costs.

For example, corn and wheat dollar prices increased by 143% and 217%, respectively, from 2002 to March 2008, but those prices rose only 37% and 79%, respectively, in real Euros (46% and 91% using the USDA index).

Abbott, Hurt, and Tyner (2008) contrast these results to the similar percentage increases that occurred in prices denominated in these terms for the commodity price spike of 1995–1996.

They conclude (pp. 37–38) that the difference highlights "the key role played by exchange rates (or whatever they are a symptom of) in the current [2007–2008] price run-ups." They attribute the dollar depreciation to a variety of causes, among them, the persistent large U.S. trade deficits, the credit crisis making the U.S. a less safe haven for investments, and the Federal government’s interest rate cuts.

However, they remain eclectic about disentangling the various causes of dollar depreciation as opposed to measuring its effects on commodity prices denominated in different currencies.

In a forward-looking analysis, Shane et al. ( 2009) contrast projections of agricultural exports, prices, and net farm income for a base scenario of moderate dollar appreciation (approximately 20% from 2008–2017), a stronger dollar (appreciation of approximately 40% by 2017), and a weaker dollar (depreciation of 4% from 2008–2017) [18].

These alternatives reflect quite a lot of uncertainty about the future value of the dollar but include less of a range than the exchange rate variation experienced in the 1973–1986 period.

Shane et al. ( 2009) identify whether the U.S. trade balance improves as the key macroeconomic outcome associated with the dollar’s value.

They introduce different exogenous levels of the exchange rate into a global macroeconomic model (the Oxford Global Macroeconomic Model).

The model then determines a path of macroeconomic outcomes (trade balance, GDP growth rates, oil prices, interest rates, inflation, and so on) consistent with the exchange rate assumption.

These macroeconomic results are then fed into an agricultural sector model (PEATSim).

The macroeconomic scenarios of an appreciating dollar reflect continued large trade deficits financed by borrowing abroad, whereas depreciation is associated with an improvement of the trade balance, which the authors argue will be more sustainable in the long term.

The alternative scenarios lead to quite different projections for U.S. agriculture.

Agricultural exports increase to $98 billion by 2017 in the base scenario of moderate appreciation.

Exports are only $68 billion by 2017 with the stronger appreciation, whereas the weak dollar scenario results in exports increasing to $137 billion, nearly double the outcome from the strong dollar case.

Exports of livestock products (pork and poultry) are most sensitive to the dollar’s value.

Agricultural commodity prices are in the range of 15–20% higher with a weak dollar than in the base scenario, whereas the scenario of strongest dollar appreciation leads to lower dollar-denominated prices.

Taking output revenue and input costs into account, net farm income declines in the short run (from 2008–2009) in all scenarios, as has occurred.

Longer-term, net farm income is project at nearly $120 billion in 2017 under a weak dollar but only $70 billion under the strongest dollar.

If one puts stock in results along these lines, they clearly demonstrate the substantial impact the value of the dollar (and associated macroeconomic outcomes) will have on U.S. agriculture.

The focus by Shane et al. ( and to a lesser extent Abbott et al.) on the U.S. current account imbalance, how it will evolve, whether it is sustainable at recent high levels, and the role exchange rates might play in reducing these deficits reflect a strong second tenant in macroeconomic dialogue (the first being the effects of monetary policy discussed previously).

A central argument has been that the U.S. trade deficits are not sustainable, pose serious long-term risks, and should be addressed by coordinated policy actions.

These arguments have been made, for example, by the macroeconomic group at the Peterson Institute for International Economics, well before the recent financial crisis [19].

Proponents of policy measures to address the nonsustainability of the U.S. trade deficits fear that market forces may at some point respond to this imbalance in a disruptive manner.

It would be better if it could be addressed by policy coordination.

The recent financial crisis has certainly been as adverse a shock to the U.S. and world economies as those fearing a harsh correction can have feared.

However, it is not clear that it either had its roots in the U.S. current account imbalance or will lead to a substantial adjustment to it.

At this point, it should be evident that I will hedge my bets on the macroeconomic dynamics that will emerge in the wake of the current deep recession.

One of my objectives has been to bring forward the line of reasoning about monetary policy that underlay Schuh’s earlier emphasis on exchange rate effects on agriculture.

That argument has not been very prominent, at least in my observation, in the public discourse about causes of the financial crisis or the policies undertaken to restore stability to financial markets and avoid an even deeper recession then has occurred.

A second objective has been to compare the recent agricultural commodity price boom with that of the 1970s.

The evidence shows some similarities (e.g. the effects of depreciation on agricultural prices) but also a fundamental dissimilarity.

Although momentarily it looked in mid-2008 that a new stagflation might occur, since then, U.S. inflation has subsided, at least so far.

The misery index remains at just 10%, not near its high levels of the 1970s and 1980s.

That index came into use to reflect an era of macroeconomic explosion not implosion, and it may not be well suited to measuring misery in a deflationary period.

Third, what will happen to the value of the dollar? It could remain weak for several reasons, for example because of the large U.S. trade deficits or low U.S. interest rates [20].

However, it could also strengthen as inflation worldwide exceeds U.S. rates or monetary policy is tightened to suppress U.S. inflation.

The two recent studies reviewed demonstrate the substantial effects of the value of the dollar on agriculture.

It is worth keeping in mind in this context that the recent boom of high agricultural prices and net farm income has occurred in a period of a weak dollar and exceptionally low interest rates.

Those circumstances can change and can change quickly.


Ludwig van Beethoven (1770-1827) is among the most admired classical music composers, with over 750 works encompassing symphonies, concertos, string quartets, piano sonatas, and opera. 1 However, his musical talent was contrasted by deteriorating health issues, including gradual hearing loss leading to deafness and liver disease.

He was born into a family with alcohol use disorder af- fecting his grandmother (Maria Josepha Poll) and father (Johann van Beethoven) and started using alcohol during his teenage years, 2 eventually meeting the current criteria for alcohol use disorder of the American Psychiatric Association in its Diagnostic and Statistical Manual of Mental Disorders (fifth edition).

3 In the second decade of his life, Beethoven suffered from recurrent diarrhea, and in the third - from severe abdominal pain.

From at least 1798, at age 28, he began to experience gradual hearing impairment, beginning from high tone frequencies, initially affecting the left ear more than the right, and accompanied by increasing tinnitus.

4-6 In 1801 he wrote in a letter to Franz Wegeler that his hearing gradually worsened over the last three years.

7 This has eventually led to the need for communication by written notes and deafness at the age of 44-45.

In the summer of 1821, he developed the first of two documented cases of jaundice.

8 In December 1826, he contracted pneumonia.

During the same period, he had second jaundice and swelling of the lower extremities, po- tentially indicating liver failure.

The clinical condition steadily de- teriorated, accompanied by weight loss, ascites requiring consecutive paracentesis, increasing cognitive issues, irritability, and depressive states.

Beethoven died in an unconscious state on 26 March 1827.

An autopsy performed a day later found, among other things, ascites, a greatly enlarged spleen and pancreas, necrosis of the renal papillae, and hepatic atrophy and cirrhosis.


Even though the etiology of Beethoven's hearing loss gained substantial scientific interest, not a single paper has offered viral hepatitis as an explanation.

6 Moreover, some authors even excluded it, e.g., by claiming that the hepatitis B virus (HBV) "was not known to exist before the twentieth century".

11 The empirical evidence contradicts this statement.

HBV DNA has been successfully isolated from biological samples from medieval and neolith.

12 Instead, the most frequently suggested causes of Beethoven's illness included lead intoxication, inflammatory bowel disease, syphilis, otosclerosis, Paget's disease, neural deafness, sarcoidosis, and systemic lupus er- ythematosus.

6 Among these, chronic lead exposure appears unlikely since Hiller lock, a hair sample reportedly cut from Beethoven's head the day he died and demonstrated to contain highly elevated levels of this metal, 13 was unequivocally excluded to originate from the composer by a recent genomic analysis.

14 Moreover, the polygenic score for inflammatory bowel disease, which some authors offered as a joint diagnosis for Beethoven's hearing loss and liver cirrhosis, 15 has placed him in the ninth risk percentile, indicating the existence of protective genetic factors (OR, 95%CI: 0.39, 0.15-1.0) 14 ; thus the involvement of this disease is highly doubtful.

Syphilis infection, common in the nineteenth century, has been excluded based on biographical information, the progressive onset of hearing loss in- stead of sudden deafness, and lack of typical anamnestic and au- toptic findings during the autopsy.

Moreover, autoptic gross examination of Beethoven's middle ears excluded the presence of otosclerotic foci.

16 It cannot be ruled out that he suffered from sys- temic lupus erythematosus since polygenic analysis placed him in the 93rd risk percentile (OR, 95%CI: 2.96, 1.54-5.67), but not a single unambiguous disease-causing gene variant was identified.

14 The involvement of chronic HBV infection in Beethoven's health issues is plausible if one considers the following: (i) Beethoven had hepatic cirrhosis as evidenced during the autopsy, 10 (ii) HBV infection can lead to various extrahepatic manifestations that potentially could be directly or indirectly related to otologic complications, and (iii) HBV DNA, indicating infection with D2 HBV subgenotype was confirmed using genomic hair analysis.


This paper outlines a hypothesis that associates HBV infection with Beethoven's hearing loss and provides evidence supporting it.

According to our hypothesis, Beethoven suffered from chronic HBV infection, and viral infection was acquired in the early years, pro- gressing from an immunetolerant phase to immune clearance in his late twenties, triggering hearing issues that gradually progressed till deafness at the age of 44-45.

In the meantime, HBV infection en- tered the non-replication phase with at least two episodes of re- activation in the fifth decade of life, accompanied by jaundice attacks.

Increased alcohol consumption and high polygenic risk of liver disease 14 could further exaggerate the effects of HBV infection.

We hope that this paper will encourage further studies on the re- lationship between hearing loss and viral hepatitis in patients cur- rently affected in different world regions patients.


Viral hepatitis can be associated with various extrahepatic manifestations.

These include, among many, polyarteritis nodosa, a systemic vasculitis characterized by necrotizing inflammatory le- sions that affect medium-sized and small muscular arteries, pre- ferentially at vessel bifurcations.

17 Since it may affect different organs, the presenting symptoms will vary and may also include conductive or sensorineural hearing loss.

18-22 It is estimated that approximately 7% of patients positive for hepatitis B surface antigen (HBsAg) are also developing polyarteritis nodosa.

23 The primary role in its onset appears to be related to circulating hepatitis B antigen/ antibody complexes, which at the same time do not appear to be pathogenic for the liver.

24 In line with the potential occurrence of polyarteritis nodosa, Beethoven's auditory arteries were described in the autopsy report as "thickened and cartilaginous as though stretched over a raven's quill".

25 In addition, ocular manifestations can occur in 10-20% of patients with polyarteritis nodosa, leading to eye inflammation in the form of uveitis or keratitis, 26,27 both suspected in Beethoven when he reported a painful eye in 1823-1824.

25 Under this scenario, Beethoven's hearing loss could result from processes secondary to, but related to, hepatitis B. However, the direct involvement of viral infection in the inner ear, where HBV could gain access through the hematogenous route, and subsequent inflammation cannot be ex- cluded since HBV was suggested to infect endothelial cells and neurons.

28-30 Although a sodium taurocholate cotransporting poly- peptide, a liver-specific bile acid transporter, has been identified as a bona fide receptor for HBV cellular entry, 31,32 recent evidence shows that a fraction of intact HBV virions can be released in exosomes, extracellular vesicle which can travel to distant tissues, and which can be uptaken by HBV non-permissive cells.

33,34 Furthermore, HBV infection can lead to an elevated release of proinflammatory cyto- kines, e.g., interleukin-1, interleukin-6, and tumor necrosis factor- alpha, 35 which can eventually lead to cochlear malfunction.

36 Moreover, as long as reduced capacity to produce interferon-α, known to control viral replication, often characterizes patients who develop chronic HBV infection, it cannot be excluded that they ex- perience fluctuations of its levels, which can particularly be expected during the phase of immune clearance.

37-39 One study demonstrated that patients with chronic HBV infection might eventually have episodes of significantly increased circulating interferon-α con- centrations, sometimes accompanied by decreased HBV DNA le- vels.


39 At the same time, therapies based on interferon, employed in treating HBV and HCV infections, have been rarely implicated in hearing loss.

40-43 Potential pathways of interferon-related ototoxi- city include direct toxicity to the auditory nerve or hair cells, inter- feron-triggered autoimmunity, or microvascular accident in the inner ear.

42,43 To explore the potential relationship between HBV infection and hearing loss, a semi-quantitative approach was employed by com- bining (1) Boolean searching using a combination of keywords ("hepatitis B" AND "hearing loss") and retrieval of articles from scholarly databases (Google Scholar, Web of Science, and Scopus) and (2) subsequent qualitative screening and analysis of the evi- dence.

The summary of identified research is provided in Table 1.


In general, 5/6 of identified studies indicate the potential in- volvement of HBV infection.

The large retrospective, control-mat- ched cohort studies clearly show the elevated risk of sudden sensorineural hearing loss (SSNHL) in HBV cohorts when controlling for confounders, which increased with the patient's age and years of follow-up.

44,45 SSNHL, which pathophysiology is obscure, is re- presented by an increase of bone and air conduction threshold ≥ 30 dB affecting at least three consecutive frequencies in audiogram within a 72-h window.

50 Its bilateral form is represented by more profound hearing loss with a poorer recovery rate.

51 The exact onset circumstances of Beethoven's hearing loss are unknown, although according to his letters, it became noticeable sometime in 1798 at the age of 28.

52 SSNHL is also frequently associated with tinnitus that permanently accompanied Beethoven's hearing loss and was described by him in letters as "ringing and buzzing".

52 MoreoverIn addition to observations in patients infected with HBV, cases of hearing loss following the administration of the HBV vaccine based on the HBsAg were also reported.

In order to identify them, a Boolean search encompassing Google Scholar, PubMed, and Scopus databases was performed using a combination of keywords ("he- patitis B vaccine" AND "hearing loss").

Overall, 3 case reports re- levant to the discussed subject were found.

Their summary is provided in Table 2. They indicate that immunization with HBsAg was very rarely associated with a decrease in hearing quality.

However, one should note that this association is only correlative and does not necessarily imply causation.


A large US case-control study investigating sudden sensorineural hearing loss following different vaccination found no increased risk for the HBV vaccine.

60 Since the reported cases occurred in patients receiving another series of HBV vaccination or a booster dose, 61-63 we can hypothesize that it could be the effect of the circulation of complexes of HBsAg and antibodies that may be behind polyarteritis nodosa, 61,62 which in turn can be associated, in some cases, with hearing loss.

59 In addition, polyarteritis nodosa has been very rarely observed after HBV vaccination.

64,65 Nevertheless, vaccine-related mechanisms, if any, that would underlie these events remain unknown.


The recent study examined the presence of HBV DNA in four authenticated (by genomic and historical record) Beethoven's hair samples: (i) Müller Lock (cut between 1815 and 1820; age 45-50 years), (ii) Bermann Lock (ca. 1821; 51 years), (iii) Halm-Thayer Lock (25 April 1826; 55 years), and (iv) Stumpff Lock (around Beethoven's death, 26-28 March 1827; age 56).

14,63,64 Only Stumpff Lock tested positive, and further phylogenetic analysis placed the sequence in the subgenotype D2 with 100% support.

65 Based on the length of this hair, the estimated length of Beethoven's hair at the time of death, the average growth of hair in European males, and the HBV in- cubation period (60-150 days), it was estimated that Stumpff Lock hair grew between June-November 1826 (or even earlier), prior to paracenteses performed on 20 December 1826, 8 January 1827 and 3 February 1827, excluding this procedure as a route of viral trans- mission.

14,66,67 Lack of HBV DNA in other tested samples, originating from an earlier period of Beethoven's life, does not exclude the possibility of infection due to the dynamic fluctuations of viral loads in the course of chronic hepatitis B, which is likely to influence the presence of its genetic material in hair.

68 According to the hypothesis offered in the present paper, Beethoven suffered from chronic HBV infection while hearing loss that he started to experience at the age of 28 was the consequence of the immune clearance phase (Fig. 1).

Under such a scenario, HBV was likely acquired in Beethoven's early days, e.g., during adolescence or earlier.

It is known that the odds of developing chronic hepatitis B are the highest after vertical or perinatal transmission (90% chance), followed by an infection at the age of 1-5 years (30% chance).

69,70 Establishing the exact circumstances under which Beethoven could have been infected is highly challenging, as a detailed biographical reconstruction of his early years is not entirely possible.

There is no information on potential health issues during his childhood that would provide more information on whether he may have required some medical procedures (e.g., injections) known to increase the risk of HBV infection, particularly in times of lower sanitary/hygiene standards.

It is only known that he was asthmatic since the age of 5 and had a "weak chest" with no record of tuberculosis and that he suffered from smallpox which left facial scarring.


68 A vertical or perinatal HBV infection could be considered if Beethoven's mother was HBV-positive.

In that case, her infection could occur due to medical procedures during pregnancy (of which there are no records we would be aware) or due to sexual intercourse if Beethoven's fa- ther, Johann van Beethoven, was also HBV-positive.

It is known that he died in 1792 from an illness that was likely caused by alcohol use.

69,70 However, in HBV-infected males, for whom mortality begins to increase since the fifth decade, 71 alcohol use is known to act sy- nergistically, and the survival of alcohol-dependent HBV-positive individuals is substantially reduced, 72,73 which could potentially explain the death of Beethoven's father at the age of 52.


The hypothesis of the present paper assumes that Beethoven had an immunetolerant phase of HBV infection until his twenties, when the infection entered the immune clearance phase (Fig. 1).

In line with this, the onset of this phase can usually be expected around 20-30 years (precisely the window during which Beethoven ex- perienced hearing loss) if infected vertically/perinatally.

74-76 More- over, during the immune clearance phase, levels of HBsAg decrease while anti-HBsAg gradually arise, 77 leading to the highest possibility of circulation of hepatitis B antigen/antibody complexed, 38-41 im- plicated in polyarteritis nodosa that may lead to hearing loss.

74 In addition, elevated interferon levels during the immune clearance phase may also play a role in Beethoven's hearing loss since inter- feron-based therapies for HBV and HCV infections were shown to induce such a symptom sporadically.

40-43 A phase of immune clearance is followed by an inactive carrier state during which the HBV ceases replication, and its serum DNA levels subsequently decrease.


We believe that Beethoven could be an inactive HBV carrier from ca. 28-32 years old, depending on the length of the immune clearance phase (which can last for months to years).

Under this scenario, he likely experienced at least two re- activation episodes when he was over 50 (Fig. 1).

First, in 1821 when prolonged jaundice, abdominal pain, and vomiting occurred, and second, in 1826, which also led to jaundice, accompanied by vo- miting and diarrhea.

4,76 Such symptoms can be present during HBV reactivation.

78 Moreover, it is known that the risk of reactivation is higher in males and increased significantly in chronically infected individuals aged ≥ 50 years.

Moreover, although HBV reactivation can occur spontaneously, it is known to be increased due to im- munosuppressive triggers.

Alcohol overuse, which increased to- wards the end of Beethoven's life, 4,79 reveals such an effect that may further be magnified by a secondary insult (e.g., an infection) and could be potentially responsible for HBV reactivation episodes in Beethoven.


This paper posits that Beethoven suffered from chronic HBV in- fection that caused hearing loss, likely during immune clearance, and jaundice due to viral reactivation.

Apart from contributing to the ongoing debate on the etiology of Beethoven's health issues, this article also highlights that hearing loss may be associated with HBV infection and summarize the existing evidence in this regard to ultimately spark more interest in studies on hearing quality in pa- tients affected by HBV and other viral hepatic infections.

At present, HBV-related hearing issues are a neglected topic in clinical hepa- tology.

Patients likely do not report their hearing issues to hepatol- ogists, while hepatologists may not relate these issues to chronic HBV infection.


Dear Editor, We read with great interest the article entitled "Could chronic HBV infection explain Beethoven’s hearing loss?

Implications for patients currently living with hepatitis B" recently published in this journal [1].

While the hypothesis presented in the article suggests that chronic HBV infection is a cause of Beethoven’s deafness and cirrhosis, there are still uncertainties surrounding the link between chronic HBV infection and deafness.

The article proposes three potential mechanisms through which HBV infection could lead to hearing loss.

Firstly, it suggests that polyarteritis nodosa associated with viral hepatitis may affect various organs, including the ears, resulting in conductive or sensorineural hearing loss [2].

Secondly, it theorizes that HBV infection directly affects the endothelial cells and neurons of the inner ear.

Lastly, it suggests that elevated release of proinflammatory cytokines due to HBV infection can ultimately lead to cochlear malfunction [3].

If indeed HBV infection can cause hearing impairment through these pathways, the effects should be more apparent.

However, there have been very few reported cases of severe hearing impairment or deafness directly attributed to HBV infection since its discovery.


It has also been hypothesized that Beethoven had chronic HBV infection, and his hearing loss at the age of 28 was a result of the immune clearance period.

Nonetheless, the detection of HBV DNA in Beethoven’s hair samples only indicates a recent infection shortly before his death, and there is insufficient evidence to support the notion that Beethoven contracted HBV early on [4].

Furthermore, the article suggests that elevated interferon levels during the immune clearance period may have contributed to Beethoven’s hearing loss and mentions that interferon-based treatments for HBV and HCV infection have occasionally induced this symptom [3].

However, the amount of interferon naturally produced by the body in response to viral infection is significantly lower than the dosage used in treatment.

Therefore, even if interferon levels increase during the immune clearance period, the resulting hearing damage would be minimal.


In conclusion, the hypothesis proposing chronic HBV infection as the cause of Beethoven’s deafness should be approached with caution.

In recent years, the hypothesis of chronic lead poisoning has gained traction and has been supported by reliable analyses and evidence.

For instance, high concentrations of lead, 40 times higher than usual, were detected in Beethoven’s hair and the top of his skull.

The chronic consumption of lead-contaminated wine could explain repeated exposure over the years, and some of Beethoven’s clinical symptoms align with those of chronic lead poisoning [5].

Therefore, we believe that the hypothesis of chronic lead poisoning provides a more plausible explanation for the etiology of Beethoven’s deafness.


Dear Editor, We thank Dr. Zichen Li and Dr. Leiliang Zhang for their interest in our review article "Could chronic HBV infection explain Beethoven’s hearing loss?

Implications for patients currently living with hepatitis B" [1] and for providing additional comments in their letter [2].

Our work was prepared with the acknowledgment that the etiology of Ludwig van Beethoven’s hearing issues, addressed over the years by various researchers, is unlikely to be fully elucidated due to insufficient clinical data.

Nevertheless, when presenting our hypothesis that Beethoven’s hearing loss resulted from HBV infection and discussing evidence supporting it, we primarily aimed to gain clinicians, including hepatologists, more awareness to hearing issues that current patients with chronic hepatitis B may experience.


In many cases, the exact etiology of hearing loss, including sudden sensorineural hearing loss (SNHL), is challenging to elucidate.

However, it is well acknowledged that viral infection is a frequent cause of such events [3][4].

Moreover, we wish to stress that a hypothesis linking Beethoven’s hearing loss to lead (Pb) intoxication, pointed out by Li and Zhang in their letter as the most probable, is no longer grounded in evidence.

Initial, highly publicized observation of elevated Pb content in Beethoven’s skull was not confirmed, while some osteologists excluded the possibility that the examined fragments belonged to the composer [5][6].


Similarly, the Hiller lock (allegedly cut from Beethoven’s head the day he died), reported to contain elevated Pb content [7], was recently molecularly evidenced to belong to a female, not Beethoven.

Last but not least, a question arises: how would it be possible for Beethoven to be intoxicated with Pb to the extent of losing his hearing but to retain cognitive abilities (that Pb exposure is known to severely affect due to its neurotoxic action [8]) at the level allowing him to compose one of the greatest masterpieces ever written in music history, such as the Symphony No. 9? At the same time, a molecular analysis of Beethoven’s authenticated hair sample provides compelling evidence that he was infected with HBV [9].


As stressed by the authors of this analysis and our paper, the lack of viral DNA fragments in hair samples from earlier periods of Beethoven’s life does not exclude an infection due to potential viremic fluctuations, likely affecting the deposition of genetic material in hair [1][9].

Therefore, we stand against disregarding our hypothesis, consideration of which shall fuel further research on hearing issues in various populations of patients infected with HBV, especially since two large retrospective matched-cohort studies conducted in Asia already indicated the increased risk of SNHL in chronic hepatitis B [10][11].


According to Intergovernmental Panel on Climate Change (IPCC, 2007) the contribution of mineral dust to radiative forc- ing is unclear in magnitude and sign.

This is mainly due to the uncertainties in the optical characteristics of mineral dust, for example, scattering phase function and spectral single scatter- ing albedo.


Levy et al. ( 2007) showed the relevance of aerosol phase function for the remote sensing of aerosols using Moder- ate Imaging Spectrometer (MODIS) instrument.

There is a large difference in the use of phase functions in MODIS between col- lections 4 and 5 retrievals.

Now phase functions for desert dust are used, based on spheroidal particle shape by Dubovik et al. ( 2006) rather than the spherical shape approximation.

For sev- eral other regions also the coarse particle fraction in the aerosol models has been increased, to give comparable retrievals with ground-based AERONET results.


Single scattering albedo of mineral dust ranges between 0.9 and 0.99 for the wavelength of 0.67 μm, modifying significantly retrievals of aerosol opti- cal thickness (AOT), depending on choice of the value.

Remote sensing of desert dust is made for instance by Hsu et al. ( 2004), Levy et al. ( 2007) and Dinter et al. ( 2008).

It requires look-up- tables (LUTs) to retrieve AOT, obtained by radiative transfer calculations, using basic radiative properties of the aerosol, like phase function and single scattering albedo (SSA) and the spec- tral surface reflectance.


Thus experimental studies of aerosol phase functions and sin- gle scattering albedo of desert dust are required to reduce the uncertainty in these optical characteristics and in the results of radiative transfer modelling for evaluating radiative forcing and remote sensing.

Therefore, within the SAMUM experiment clo- sure measurements of ground-based AOT, spectral sky bright- ness and satellite radiance have been performed to derive aerosol phase functions and single scattering albedo of desert dust in the vicinity of a major dust source region.

Spectral surface re- flectance is contributed by air-borne (Bierwirth et al., 2008) and satellite (Dinter et al., 2008) observations.


A key characteristic is the aerosol phase function.

Uncer- tainties in phase function have consequences on other radiative characteristics in remote sensing.

The errors in the phase func- tion have direct influence on retrieved AOT, single scattering albedo and the bi-directional reflection functions (BRDF) of the surface.

Therefore, the first focus of this specific SAMUM con- tribution is the determination of phase functions of desert dust.

The resulting phase functions will be used for the generation of LUTs for the aerosol retrieval in Dinter et al. ( 2008) and the derivation of single scattering albedo in this contribution.


The derivation of phase functions and single scattering albedo can be obtained by either laboratory measurements or indirectly by radiative closure measurements.

Laboratory measurements of phase functions are made with polar nephelometers (Volten et al., 1996, 2001), single scattering albedo is determined by combined nephelometer and absorption photometer measure- ments (Müller et al., 2008a).

These approaches use aerosol samples for the analysis.


Indirect radiative closure studies use quasi-simultaneous measurements of different radiation charac- teristics and evaluate them by inverse retrieval techniques.

The advantage of indirect methods is that the aerosol will not be influenced by the sampling process as it is the case for labora- tory investigations.

Thus inverse methods, analysing combined spectral sunphotometer and sky brightness measurements, have been developed to powerful tools for the retrieval of aerosol phase functions (Wendisch and von Hoyningen-Huenen, 1994; von Hoyningen-Huene and Posse, 1997; Dubovik et al., 2002).

Retrievals with measurements under desert dust conditions have been made by von Hoyningen-Huene et al. ( 1999), Catrall et al. ( 2003) and Dubovik et al. ( 2006) and considered non-spherical light scattering for the dust particles.

Additionally satellite mea- surement of top-of-atmosphere (TOA) reflectance enables the estimation of single scattering albedo.