A Decade of Impact of Monetary Policy on Food Inflation: An Overview and Future Direction

2021 ◽  
pp. 097226292110156
Author(s):  
Simranjeet Kaur
Keyword(s):  
Monetary Policy ◽  
Food Prices ◽  
Policy Regimes ◽  
Inflation Rates ◽  
Depth Analysis ◽  
Policy Transmission ◽  
Price Hike ◽  
Subsequent Section ◽  
Future Direction ◽  
Food Inflation

This article presents a systematic literature review spanning the decade of 2010–2020 in a thematic fashion. It provides an in-depth analysis of how monetary policy regimes are responding to food inflation. It discusses about factors driving food inflation and the manner in which efficiency of financial markets facilitate policy transmission. Further, it explains how food insecurity is exacerbated by rise in food prices and the way high-income countries protect their farmers through input subsidies, indirectly contributing to global food price hike. It also argues that a strong monetary policy credibility can lend stationarity and mean-reversion to inflation rates. Next, it discusses the issues faced by central banks in measurement of inflation such as conflict of choice in different inflation measures and supply side constraints ranging from high farm-to-fork mark-ups to cartelization and hoarding. In subsequent section, it deals with the question whether to target headline or core inflation. After that, it presents a snapshot of various advanced and emerging countries operating their monetary policy in the presence of fiscal policy. It illustrates that the degree of fiscal intervention should be decided according to individual threshold of every country, taking into account the proportion of Ricardian and non-Ricardian population.

Rising food inflation and India's monetary policy

2011 ◽  
Vol 4 (1) ◽  
pp. 73-94 ◽  
Author(s):  
Vivek Moorthy ◽  
Shrikant Kolhar
Keyword(s):  
Monetary Policy ◽  
Emerging Economies ◽  
Consumer Price Index ◽  
Food Prices ◽  
Content Type ◽  
Welfare Impact ◽  
Technical Issues ◽  
Price Hike ◽  
The Impact ◽  
Food Inflation

PurposeThe purpose of this paper is to analyse the implications of sharply rising food prices for monetary policy in India and similar emerging economies at present.Design/methodology/approachThis paper uses analytical arguments from relevant macroeconomic literature and evidence from late 1960s US data to examine whether the 1970s stagflation was due to the OPEC price hike. It develops a two person (rich and poor), two commodity (food and non‐food) model to examine the impact of rising food prices on GDP, on measures of inflation, and on welfare, in the model.FindingsPreviously neglected evidence indicates that stagflation (simultaneously rising unemployment and inflation) preceded the OPEC price hike. The model results indicate that when food prices rise, the GDP deflator falls relative to the consumer price index (CPI).Research limitations/implicationsThe impact of supply shocks should be investigated by carefully examining links between abnormal rainfall and weather and output and prices on commodity by commodity basis. Further, technical issues pertaining to construction of a composite CPI representative of the population need to be explored.Practical implicationsMonetary policy in India (and similar emerging economies) should focus upon a population weighted CPI or some variant thereof.Social implicationsHigh GDP growth should not lead to complacency, since when food prices are rising, the overall welfare impact may be negative.Originality/valueThe model presented in this paper explains the sustained divergence in India, in recent years, between the CPI versus the GDP deflator measures of inflation. It also highlights a possible similar divergence between GDP and overall welfare.

scholarly journals Nepal

2019 ◽  
Vol 19 (60) ◽  
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Inflation Pressure ◽  
Price Shocks ◽  
Core Inflation ◽  
Inflation Rates ◽  
Exchange Rate Movements ◽  
Pass Through ◽  
Food Inflation ◽  
Domestic Inflation

This Selected Issues paper examines the degree to which inflation co-moves between India and a panel of countries in Asia. The paper shows that the considerable co-movement in headline inflation rates between India and Nepal is driven almost exclusively by food-inflation co-movement. By contrast, the role of inflation spillovers from India in driving nonfood inflation in Nepal appears limited. The implication is that Nepal should rely on domestic monetary policy rather than stable inflation in India to achieve stable domestic inflation. The main takeaway is that food inflation co-movement between India and other countries is higher when co-movement in rainfall deviation from seasonal norms is highest. Since core inflation co-movement is weak, idiosyncratic domestic factors such as economic slack, exchange rate movements, and differing degrees of pass-through from food- and energy-price shocks play an important role. This finding is critically important for monetary policy, especially since domestic policy is primarily effective only in controlling core inflation. Thus, domestic monetary policy must be calibrated according to domestic inflation pressure—Nepal cannot necessarily rely on stable inflation in India to achieve stable domestic inflation.

scholarly journals Implications of Food Subsistence for Monetary Policy and Inflation

2018 ◽  
Author(s):  
Rafael Portillo ◽  
Luis-Felipe Zanna ◽  
Stephen O’Connell ◽  
Richard Peck
Keyword(s):  
Monetary Policy ◽  
Dominant Role ◽  
Development Spectrum ◽  
Food Prices ◽  
Relative Price ◽  
New Keynesian ◽  
Poor Countries ◽  
Keynesian Model ◽  
Welfare Losses ◽  
Food Inflation

The chapter introduces subsistence requirements in food consumption into a simple New Keynesian model with flexible food and sticky non-food prices. It shows how the endogenous structural transformation that results from subsistence affects the dynamics of the economy, the design of monetary policy, and the properties of inflation at different levels of development. A calibrated version of the model encompasses both rich and poor countries and broadly replicates the properties of inflation across the development spectrum, including the dominant role played by changes in the relative price of food in poor countries. The authors derive a welfare-based loss function for the monetary authority and show that optimal policy calls for complete (in some cases near-complete) stabilization of sticky-price non-food inflation, despite the presence of a food-subsistence threshold. Subsistence amplifies the welfare losses of policy mistakes, however, raising the stakes for monetary policy at earlier stages of development.

scholarly journals The impact of inflation targeting framework on food price inflation: evidence from developing economies

2017 ◽  
Vol 6 (4) ◽  
pp. 53-60 ◽  
Author(s):  
Abhijit Surya
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Developing Economies ◽  
Policy Instruments ◽  
Food Prices ◽  
Policy Framework ◽  
Price Inflation ◽  
Inflation Rates ◽  
The Impact ◽  
Monetary Policy Framework

Inflation Targeting (IT) has gained much popularity in recent years, with fifteen countries formally adopting it as a monetary policy framework since 2000. However, in developing countries, where the contribution of food prices to headline inflation is generally higher than in advanced economies, the adequacy of an IT framework for curbing inflation is very much contested. In this paper, we use a difference-in-differences approach to evaluate the treatment effect of adopting IT. Controlling for reversion to the mean, we find that economies that function under an IT regime do no better than countries that use alternative policy instruments. We verify the robustness of these results using panel unit-root tests and find that food inflation rates converge across economies irrespective of the monetary policy framework implemented.

On the Sources of Inflation in Kenya

2018 ◽  
Author(s):  
Michal Andrle ◽  
Andrew Berg ◽  
R. Armando Morales ◽  
Rafael Portillo ◽  
Jan Vlcek
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Food Prices ◽  
Nominal Exchange Rate ◽  
Relative Price ◽  
New Keynesian ◽  
Macroeconomic Shocks ◽  
Imported Food ◽  
Business Cycle Dynamics ◽  
Food Inflation

The authors develop a semi-structural, New Keynesian open-economy model with separate food and non-food inflation dynamics to study the sources of inflation in Kenya in recent years. They filter international and Kenyan data through the model to recover a model-based decomposition of most variables into trends (or potential values) and temporary movements (or gaps), including for the international and domestic relative price of food. The filtration exercise helps recover the sequence of domestic and foreign macroeconomic shocks that account for business cycle dynamics in Kenya over the last few years, with a special emphasis on the various factors (international food prices, monetary policy) driving inflation. The authors find that while imported food price shocks have been an important source of inflation, both in 2008 and more recently, accommodating monetary policy has also played a role, most notably through its effect on the nominal exchange rate.

scholarly journals Assessing the effect of monetary policy on agricultural growth and food prices

2018 ◽  
Vol 64 (No. 11) ◽  
pp. 499-507
Author(s):  
Zulfiqar Ali WAGAN ◽  
Zhang CHEN ◽  
Seelro HAKIMZADI ◽  
Muhammad Sanaullah SHAH
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Labour Force ◽  
Food Prices ◽  
Price Inflation ◽  
Vector Autoregressive ◽  
Agricultural Growth ◽  
Effect Of Monetary Policy ◽  
The Impact ◽  
Food Inflation

Agricultural growth is closely associated with sustainable economic development. This is especially true from the perspective of developing countries, such as India and Pakistan, where significant portions of the labour force are dependent on agriculture for their livelihood. This study analysed the impact of macroeconomic policy (i.e. monetary policy) on employment, food inflation, and agricultural growth by analysing to what extent monetary policy is effective in controlling food price inflation, the effect of contractionary monetary policy on the agricultural sector’s employment and productivity, and the extent of monetary policy transmission to money market rates and 10-year interest rates. We did so by applying a factor-augmented vector autoregressive model proposed by Bernanke et al. (2005) to agricultural data from 1995 and 1996 to 2016 for India and Pakistan, respectively. We found that tight monetary policy significantly reduced food inflation and agricultural production while increasing the rural unemployment rate. Short-term and 10-year interest rates increased owing to the contractionary monetary policies pursued by both countries. An inclusive monetary policy whereby policymakers work alongside governments to achieve price stabilisation and reasonable employment rates is recommended.

Regional effects of inflation targeting in Russia: Factors of heterogeneity and structural inflation rates

2019 ◽  
pp. 70-89
Author(s):  
Michael I. Zhemkov
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Structural Factors ◽  
Regional Effects ◽  
Inflation Rates ◽  
Price Growth ◽  
Effective Exchange ◽  
The Difference ◽  
Communication Policies ◽  
Structural Levels

Inflation targeting in Russia implies maintaining stable low inflation at a level of 4% throughout the country. The presence of structural factors in some regions can determine deviations from the all-Russian inflation, which can lead to different effects of monetary policy in Russian regions. In this paper, we analyze regional heterogeneity of inflation and factors of inflation deviations from the national average, estimate structural levels of inflation in the regions of Russian Federation. These estimates confirm the presence of some regional factors of inflation deviations from the all-Russian indicator, such as the difference in productivity growth of the tradable and non-tradable sectors (Balassa—Samuelson effect), effective exchange rates, real incomes and product stocks. In addition, our results confirm the presence of regions with price growth rate above and below monetary policy target. The results of this research can be used for the development of monetary and communication policies.

Monetary policy regimes in Russia: Guidelines for furtherquantitative studies

2017 ◽  
pp. 38-60 ◽  
Author(s):  
A. Pestova
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Quantitative Research ◽  
Policy Regimes ◽  
Policy Effects ◽  
Exchange Rate Targeting ◽  
Basic Parameters

This paper analyzes the basic parameters of monetary policy in 2000-2015 in Russia. We provide the overview of tools and objectives of monetary policy of the Bank of Russia and identify the periods of homogeneity of monetary policy regimes: from money base targeting to exchange rate targeting and finally, to interest rates policy. On the basis of this research we develop the recommendations for further quantitative research aimed at estimation of monetary policy effects in Russia.

Global Food Commodity Prices and Domestic Food Inflation: Some Insights from Morocco

New Medit ◽  
2020 ◽  
Vol 19 (3) ◽  
Author(s):  
Ahmed EL GHIN ◽  
Mounir EL-KARIMI
Keyword(s):  
Exchange Rate Regime ◽  
Commodity Prices ◽  
Food Prices ◽  
Consumer Prices ◽  
Floating Exchange Rate ◽  
Pass Through ◽  
The Impact ◽  
Food Inflation ◽  
Global Food ◽  
Domestic Food

This paper examines the world commodity prices pass-through to food inflation in Morocco, over the period 2004-2018, by using Structural Vector Autoregression (SVAR) model on monthly data. Several interesting results are found from this study. First, the impact of global food prices on domestic food inflation is shown significant, which reflects the large imported component in the domestic food consumption basket. Second, the transmission effect is found to vary across commodities. Consumer prices of cereals and oils significantly and positively respond to external price shocks, while those of dairy and beverages are weakly influenced. Third, there is evidence of asymmetries in the pass-through from world to domestic food prices, where external positive shocks generate a stronger local prices response than negative ones. This situation is indicative of policy and market distortions, namely the subsidies, price controls, and weak competitive market structures. Our findings suggest that food price movements should require much attention in monetary policymaking, especially that the country has taken preliminary steps towards the adoption of floating exchange rate regime.

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