Food prices and inflation targeting in emerging economies

Benjamin Carton, Dramane Coulibaly and Marc Pourroy
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Benjamin Carton: CEPREMAP - Centre pour la recherche économique et ses applications - ECO ENS-PSL - Département d'économie de l'ENS-PSL - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres

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Abstract: The two episodes of food price surges in 2007 and 2011 followed by a drop in 2014 have been particularly challenging for developing and emerging economies' central banks and have raised the question of how monetary authorities should react to such external relative price shocks. We investigate the optimal monetary policy that manages food price shocks. To this end, we develop a new-Keynesian small open-economy model that incorporates world food price shocks. We show that the optimal monetary policy depends on country income level. In low and medium income countries, overall consumer price targeting is optimal, while in high-income countries non-food inflation targeting is the best option. This result holds not only because food represents a significant share in total consumption in low and medium income countries, but also because of food good composition. Indeed, the poorer the country, the higher the share of purely domestic food in consumption and the more detrimental lack of attention to the evolution in food prices.

Keywords: Monetary policy; Commodities; Food prices; DSGE models (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (23)

Published in International Economics, 2016, 145, pp.108 - 140. ⟨10.1016/j.inteco.2015.12.001⟩

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Related works:
Journal Article: Food Prices and Inflation Targeting in Emerging Economies (2016)
Journal Article: Food prices and inflation targeting in emerging economies (2016)
Working Paper: Food Prices and Inflation Targeting in Emerging Economies (2013)
Working Paper: Food Prices and Inflation Targeting in Emerging Economies (2013)
Working Paper: Food Prices and Inflation Targeting in Emerging Economies (2013)
Working Paper: Food Prices and Inflation Targeting in Emerging Economies (2012)
Working Paper: Food Prices and Inflation Targeting in Emerging Economies (2012)
Working Paper: Food Prices and Inflation Targeting in Emerging Economies (2012)
Working Paper: Food Prices and Inflation Targeting in Emerging Economies (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01386045

DOI: 10.1016/j.inteco.2015.12.001

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