World Food Prices and Monetary Policy
64 Pages Posted: 6 Dec 2010 Last revised: 5 Apr 2023
Date Written: December 2010
Abstract
In recent years, large fluctuations in world food prices have renewed interest in the question of how monetary policy in small open economies should react to imported price shocks. We address this issue in an open economy setting similar to previous ones except that food plays a distinctive role in utility. A key novelty of our model is that the real exchange rate and the terms of trade can move in opposite directions in response to food price shocks. This has several consequences for observables and for policy. Under a variety of model calibrations, broad CPI targeting emerges as welfare-superior to alternative policy rules once the variance of food price shocks is as large as in real world data.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
World Food Prices and Monetary Policy
By Luis Catão and Roberto Chang
-
Optimal Price Indices for Targeting Inflation Under Incomplete Markets
By Rahul Anand and Eswar S. Prasad
-
Optimal Price Indices for Targeting Inflation Under Incomplete Markets
By Rahul Anand and Eswar S. Prasad
-
Optimal Price Indices for Targeting Inflation Under Incomplete Markets
By Rahul Anand and Eswar S. Prasad
-
Inflation Measure, Taylor Rules, and the Greenspan-Bernanke Years
By Yash P. Mehra and Bansi Sawhney
-
By C. Y. Choi and Roisin O'sullivan
-
Commodity Price Movements and Monetary Policy in Asia
By Changyong Rhee and Hangyong Lee