Asymmetry in food price responses to monetary policy: a quantile regression approach

Abdul-Aziz Iddrisu and Imhotep Alagidede ()

SN Business & Economics, 2021, vol. 1, issue 3, 1-25

Abstract: Abstract The dominance of food in the consumption baskets of many developing countries remains a policy challenge, as it drives overall inflation in these countries. While optimal monetary policy, theoretically, is acknowledged to provide stability in the prices of food, very little is known empirically about this effect, particularly on Africa where food is a major component of the consumption baskets. With the aid of quantile regression, we provide empirical evidence on monetary policy-food inflation nexus in the context of Ghana, an inflation targeting country with food alone constituting 43.9% of the consumption basket. We find that contractionary monetary policy is destabilizing for food prices, particularly at the 20th, 25th, 30th, 35th, 40th, and the 45th quantiles of food price distribution. In addition, whiles transportation cost and output are important drivers of food prices across the specified quantiles, exchange rate movements and changes in the world food prices are not. These findings present significant policy implications for welfare and monetary policy conduct in Ghana and many developing countries with similar food credentials in their consumption baskets.

Date: 2021
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DOI: 10.1007/s43546-021-00056-7

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