World Food Prices and Monetary Policy
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
The large swings in world food prices in recent years renew interest in the question of how monetary policy in small open economies should react to such imported price shocks. We examine this issue in a canonical open economy setting with sticky prices and where food plays a distinctive role in utility. We show how world food price shocks affect natural output and other aggregates, and derive a second order approximation to welfare. Numerical calibrations show broad CPI targeting to be welfare-superior to alternative policy rules once the variance of food price shocks is sufficiently large as in real world data.
Series:
Working Paper No. 2010/161
Subject:
Commodity price shocks Consumer price indexes Consumption Inflation Producer price indexes
English
Publication Date:
July 1, 2010
ISBN/ISSN:
9781455201440/1018-5941
Stock No:
WPIEA2010161
Pages:
66
Please address any questions about this title to publications@imf.org