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Effectiveness of monetary policy in stabilising food inflation: Evidence from advanced and emerging economies

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  • Bhattacharya. Rudrani

    (National Institute of Public Finance and policy)

Abstract

In the backdrop of several episodes of high and volatile food inflation in emerging economies, a wealth of literature emphasises on broad range of monetary and exchange rate policies to stabilise food inflation by moderating demand pressure. While the theoretical literature mainly focus on welfare-maximising monetary policy, there exists hardly any empirical consensus on effectiveness of monetary policy to stabilise food inflation. Very recently, a limited strand of empirical literature has attempted to shed light in this arena. The present study attempts to contribute in this literature by analysing effectiveness of monetary policy shock to stabilise food inflation in a panel of developed and emerging economies. We find that an unexpected monetary tightening has a positive and significant effect on food inflation in both advanced and emerging economies. Our findings suggest that in the backdrop of inflationary pressure stemming from the food sector, a monetary tightening may turn out to be destabilising for the food as well as overall inflation in the economy.

Suggested Citation

  • Bhattacharya. Rudrani, 2017. "Effectiveness of monetary policy in stabilising food inflation: Evidence from advanced and emerging economies," Working Papers 17/209, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:17/209
    Note: Working Paper 209, 2017
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    References listed on IDEAS

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    Cited by:

    1. Chakraborty, Lekha & Singh, Yadawendra, 2018. "Fiscal Policy, as the "Employer of Last Resort": Impact of MGNREGS on Labour Force Participation Rates in India," Working Papers 18/210, National Institute of Public Finance and Policy.
    2. Chakraborty, Pinaki & Gupta, Manish & Chakraborty, Lekha, 2018. "Would UDAY brighten up Rajasthan Finances?," Working Papers 18/211, National Institute of Public Finance and Policy.
    3. Marcos J. G. Rambalducci & Barbara R. Feltrin, 2018. "The Impact Of The Monetary Value Of The Basket Of Goods In The Economy Of Londrina/Pr – Brazil," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 12(1), pages 37-51.
    4. Ashima Goyal & Prashant Parab, 2019. "Modeling heterogeneity and rationality of inflation expectations across Indian households," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-02, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    Food inflation ; Monetary policy ; Emerging economies ; Panel Vector Auto-Regression.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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