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Can monetary policy stabilise food inflation? Evidence from advanced and emerging economies

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  • Bhattacharya, Rudrani
  • Jain, Richa

Abstract

This paper addresses a long-standing political debate as how effective is monetary policy to stabilise food inflation. While a wealth of theoretical literature suggests a stabilising role of monetary policy via aggregate demand channel, there exists hardly any empirical consensus on this issue. Very recently, a limited strand of empirical literature has attempted to shed light in this arena. The present study contributes to this literature by analysing the effectiveness of aggregate demand channel in presence of production cost channel of monetary policy transmission, affecting prices positively via supply side, in a panel of developed and emerging economies for the period 2006 Q1 to 2016 Q2. 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 & Jain, Richa, 2020. "Can monetary policy stabilise food inflation? Evidence from advanced and emerging economies," Economic Modelling, Elsevier, vol. 89(C), pages 122-141.
    • Handle: RePEc:eee:ecmode:v:89:y:2020:i:c:p:122-141
    DOI: 10.1016/j.econmod.2019.10.005
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    Cited by:

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    2. Gupta, Sargam, 2024. "Inefficient shocks and optimal monetary policy," Economic Modelling, Elsevier, vol. 135(C).
    3. Ronald Jeremy Antonio & Harold Glenn Valera & Ashok K. Mishra & Valerien O. Pede & Takashi Yamano & Bernardo Oliva Vieira, 2025. "Rice Price Inflation Dynamics in the Philippines," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 69(2), pages 440-452, April.
    4. Goyal, Ashima & Parab, Prashant, 2021. "What influences aggregate inflation expectations of households in India?," Journal of Asian Economics, Elsevier, vol. 72(C).
    5. Ginn, William & Pourroy, Marc, 2022. "The contribution of food subsidy policy to monetary policy in India," Economic Modelling, Elsevier, vol. 113(C).
    6. Kumar, Ankit & Dash, Pradyumna, 2020. "Changing transmission of monetary policy on disaggregate inflation in India," Economic Modelling, Elsevier, vol. 92(C), pages 109-125.
    7. Priya, Pragati & Sharma, Chandan, 2024. "On transmission channels of energy prices and monetary policy shocks to household consumption: Evidence from India," Energy Economics, Elsevier, vol. 136(C).
    8. Nezir Köse & Emre Ünal, 2024. "The effects of the oil price and temperature on food inflation in Latin America," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(2), pages 3269-3295, February.
    9. Paras Sachdeva & Wasim Ahmad & N. R. Bhanumurthy, 2024. "Public expenditure multiplier across business cycle phases in an emerging economy: new empirical evidence and dimension," Empirical Economics, Springer, vol. 66(1), pages 279-299, January.
    10. William Ginn & Marc Pourroy, 2022. "The Contribution of Food Subsidy Policy to Monetary Policy in India," Working Papers hal-02944209, HAL.
    11. Fertő, Imre & Bareith, Tibor, 2024. "Does Monetary Policy Stabilise Food Inflation in Hungary?," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 16(4), December.
    12. Asharani Samal & Mallesh Ummalla & Phanindra Goyari, 2022. "The impact of macroeconomic factors on food price inflation: an evidence from India," Future Business Journal, Springer, vol. 8(1), pages 1-14, December.
    13. Ronald Jeremy Antonio & Harold Glenn Valera & Ashok K. Mishra & Valerien O. Pede & Takashi Yamano & Bernardo Oliva Vieira, 2025. "Rice Price Inflation Dynamics in the Philippines," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 69(2), pages 440-452, April.
    14. Bhattacharya, Rudrani, 2023. "Does Monetary Policy in India Anchor Inflation Expectation?," Working Papers 23/395, National Institute of Public Finance and Policy.
    15. Simranjeet Kaur, 2023. "A Decade of Impact of Monetary Policy on Food Inflation: An Overview and Future Direction," Vision, , vol. 27(4), pages 498-509, August.
    16. Nwachukwu Edwin Udochukwu & Orji Alexander Chinedu & Edeh B. Ogah & Ukeje Chiemezie Desmond, 2024. "Monetary Policy Rate and Food Inflation in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(8), pages 4494-4506, August.
    17. Muñoz-Villamizar, Andrés & Piatti, Matias & Mejía-Argueta, Christopher & Pirabe, Luis Felipe & Namdar, Jafar & Gomez, Juan Felipe, 2024. "Navigating retail inflation in Brazil: A machine learning and web scraping approach to the basic food basket," Journal of Retailing and Consumer Services, Elsevier, vol. 79(C).

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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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