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The impacts of interest rate changes on US Midwest farmland values

Author

Listed:
  • Albulena Basha
  • Wendong Zhang
  • Chad Hart

Abstract

Purpose - This paper quantifies the effects of recent Federal Reserve interest rate changes, specifically recent hikes and cuts in the federal funds rate since 2015, on Midwest farmland values. Design/methodology/approach - The authors apply three autoregressive distributed lag (ARDL) models to a panel data of state-level farmland values from 1963 to 2018 to estimate the dynamic effects of interest rate changes on the US farmland market. We focus on the I-states, Lakes states and Great Plains states. The models in the study capture both short-term and long-term impacts of policy changes on land values. Findings - The authors find that changes in the federal funds rate have long-lasting impacts on farmland values, as it takes at least a decade for the full effects of an interest rate change to be capitalized in farmland values. The results show that the three recent federal funds rate cuts in 2019 were not sufficient to offset the downward pressures from the 2015–2018 interest rate hikes, but the 2020 cut is. The combined effect of the Federal Reserve's recent interest rate moves on farmland values will be positive for some time starting in 2022. Originality/value - This paper provides the first empirical quantification of the immediate and long-run impacts of recent Federal Reserve interest rate moves on farmland values. The authors demonstrate the long-lasting repercussions of Federal Reserve's policy choices in the farmland market.

Suggested Citation

  • Albulena Basha & Wendong Zhang & Chad Hart, 2021. "The impacts of interest rate changes on US Midwest farmland values," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 81(5), pages 746-766, February.
    • Handle: RePEc:eme:afrpps:afr-11-2020-0163
    DOI: 10.1108/AFR-11-2020-0163
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    2. Nazário Augusto de Oliveira & Leonardo Fernando Cruz Basso, 2024. "The Impact of Value Creation (Tobin’s Q), Total Shareholder Return (TSR), and Survival (Altman’s Z) on Credit Ratings," IJFS, MDPI, vol. 12(2), pages 1-17, May.

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    More about this item

    Keywords

    Farmland; Interest rate; Federal reserve; Autoregressive distributed lag model; Federal funds rate; Land value; G28; Q14;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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