Understanding Farmland Price Changes

Abstract This paper develops a structural model of land prices which includes the multidimensional effects of inflation on capital‐erosion, savings‐return erosion, and real debt reduction as well as the effect of changes in the opportunity cost of capital. The results show that inflation and changes in the real returns on capital are major explanatory factors in farmland price swings in addition to returns to farming. Additionally, the effects of credit market constraints and expectations schemes are considered explicitly in the analytical model.