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Pass-through of International Food Prices to Domestic Inflation During and After the Great Recession: Evidence from a Set of Latin American Economies

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Author Info

  • Munir Jalil

    ()

  • Esteban Tamayo

    ()

Abstract

We looked at how international food price shocks have impacted local inflation processes in Brazil, Chile, Colombia, Mexico, and Peru in the past decade. Using impulse-response analysis coming from cointegrated vars, we find that international food inflation shocks take from one to six quarters to pass through to domestic headline inflation, depending on the country. In addition, by calculating the elasticity of local prices to an international food price shock, we found that this pass-through is not complete. We also take a closer look at how this type of shock affects local food and core prices separately, and asses the possibility second round effects over core inflation stemming from the shock. We find that a transmission to headline prices does occur, and that part of the transmission is associated with rising core prices both directly and through possible second round effects, which implies a role for monetary policy when such a shock takes place. This is especially relevant given that international food prices have recently followed an upward trend after falling considerably during the Great Recession.

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File URL: http://economia.uniandes.edu.co/revistadys/67/04_Food_Price.pdf
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Bibliographic Info

Article provided by UNIVERSIDAD DE LOS ANDES-CEDE in its journal REVISTA DESARROLLO Y SOCIEDAD.

Volume (Year): (2011)
Issue (Month): ()
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Handle: RePEc:col:000090:008922

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Related research

Keywords: Food inflation; fao food price index; Latin American inflation; second round effects.;

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References

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  1. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  2. Paul Cashin & C. John McDermott, 2001. "The Long-Run Behavior of Commodity Prices," IMF Working Papers 01/68, International Monetary Fund.
  3. Kahler, Miles, 1985. "Politics and international debt: explaining the crisis," International Organization, Cambridge University Press, vol. 39(03), pages 357-382, June.
  4. Fred Furlong, 1989. "Commodity prices and inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun16.
  5. Reinhart, Carmen & Wickham, Peter, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," MPRA Paper 8173, University Library of Munich, Germany.
  6. Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 2.
  7. Teitel, Simon & Colman Sercovich, Francisco, 1984. "Latin America," World Development, Elsevier, vol. 12(5-6), pages 645-660.
  8. Leandro Medina, 2010. "The Dynamic Effects of Commodity Priceson Fiscal Performance in Latin America," IMF Working Papers 10/192, International Monetary Fund.
  9. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
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Cited by:
  1. Luis Eduardo Arango & Ximena Chavarro & Eliana Rocío González, 2012. "Precios de bienes primarios e inflación en Colombia," Borradores de Economia 712, Banco de la Republica de Colombia.
  2. Michael Pedersen, 2011. "Propagation of Shocks to Food and Energy Prices: an International Comparison," Working Papers Central Bank of Chile 648, Central Bank of Chile.

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