European Parliament Library

World Food Prices and Monetary Policy, Roberto Chang, Luis Catão

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
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; 1. Introduction; 1. World WPI and World Relative Food Prices (in deviations from HP-trend); 1. Correlation between World Inflation Indicators and Food and Oil Prices; 2. Causality Tests; 3. Food Expenditure Shares; 2. Model; 2. Effects of Food Price Shocks on Natural Output and the Terms of Trade; 3. Impulse-Responses; 4. Calibration of Parameters; 3. Impulse Responses of one unit world food's relative price shock with sigma = 2 and eta= [0.25, 0.5, 0.5, 2] and gamma = 1 with PPI rule
Literary Form
non fiction
"June 2010."
Physical Description
1 online resource (75 p.)
Specific Material Designation
Form Of Item

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