Does Monetary Policy Affect Urban Food Inflation? Some Evidence From India

Razique Anwar and Atulan Guha

Review of Development Economics, 2025, vol. 29, issue 4, 2397-2413

Abstract: Our study examines the impact of monetary policy on urban food inflation in India, which is crucial due to the significant role food prices play in the lives of millions in this developing country. Utilizing quantile regression, which is more appropriate for capturing tail dynamics of macroeconomic variables like food inflation, the study offers insights beyond the mean‐based VAR approaches traditionally employed, which often yield inconsistent results. Our findings indicate that monetary policy does not have a statistically consistent significant impact across quantiles but only exhibits a weak random negative effect. This weak linkage may stem from the limited integration of urban food markets with the demand transmission mechanisms of monetary policy and the fact that food price instability primarily results from supply‐side shocks within India's regulated policy framework. Our results challenge the findings of previous studies where consistence significant negative effect of monetary policy on food inflation were reported across quantiles in India. Our study benefits from an enhanced and robust methodological approach, offering a more reliable analysis of the interplay between monetary policy and food inflation in urban India.

Date: 2025
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