Food prices and inflation targeting in emerging economiesMarc Pourroy, Benjamin Carton () and Dramane Coulibaly International Economics, 2016, vol. 146, issue C, 108-140 Abstract: The two episodes of food price surges in 2007 and 2011 followed by a drop in 2014 have been particularly challenging for developing and emerging economies’ central banks and have raised the question of how monetary authorities should react to such external relative price shocks. We investigate the optimal monetary policy that manages food price shocks. To this end, we develop a new-Keynesian small open-economy model that incorporates world food price shocks. We show that the optimal monetary policy depends on country income level. In low and medium income countries, overall consumer price targeting is optimal, while in high-income countries non-food inflation targeting is the best option. This result holds not only because food represents a significant share in total consumption in low and medium income countries, but also because of food good composition. Indeed, the poorer the country, the higher the share of purely domestic food in consumption and the more detrimental lack of attention to the evolution in food prices. Keywords: Monetary policy; Commodities; Food prices; DSGE models (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:146:y:2016:i:c:p:108-140 DOI: 10.1016/j.inteco.2015.12.001 Access Statistics for this article International Economics is currently edited by Valerie Mignon and Marcelo Olarreaga More articles in International Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.