UID:
edocfu_9958080752902883
Format:
1 online resource (65 p.)
ISBN:
1-4843-5726-4
,
1-4843-9787-8
,
1-4843-9449-6
Series Statement:
IMF working paper ; WP/13/114
Content:
How should monetary policy respond to large fluctuations in world food prices? We study this question in an open economy model in which imported food has a larger weight in domestic consumption than abroad and international risk sharing can be imperfect. A key novelty is that the real exchange rate and the terms of trade can move in opposite directions in response to world food price shocks. This exacerbates the policy trade-off between stabilizing output prices vis a vis the real exchange rate, to an extent that depends on risk sharing and the price elasticity of exports. Under perfect risk sharing, targeting the headline CPI welfare-dominates targeting the PPI if the variance of food price shocks is not too small and the export price elasticity is realistically high. In such a case, however, targeting forecast CPI is a superior choice. With incomplete risk sharing, PPI targeting is clearly a winner.
Note:
Description based upon print version of record.
,
Cover; Contents; 1. Introduction; 2. Model; 2.1 Households; 2.2 Prices; 2.3 Domestic Production; 2.4 Market Clearing; 3. International Relative Prices, Risk Sharing, and Aggregate Supply; 3.1 Inflation and Marginal Costs; 3.2 The Phillips Curve; 3.2.1 The Perfect Risk Sharing Case; 3.2.2 The Financial Autarky Case; 4. Aggregate Demand, Dynamics, and Impulse Responses; 4.1 The Dynamic IS and the Natural Interest Rate; 4.2 Impulse Responses under Perfect Risk Sharing; 4.3 Impulse Responses under Financial Autarky; 5. Welfare and Policy Trade-Offs
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5.1 Social Planner's vs. Flex-Price Market Allocation5.2 Policy Trade-offs Under Perfect Risk Sharing; 5.3 Policy Trade-offs Under Financial Autarky; 6. Welfare Implications in a Calibrated Version of the Model; 6.1 Calibration; 6.2 Welfare Metrics; 6.3 Welfare Results; 7. Conclusion; Appendix; References; Figures; 1. World WPI and World Food Price Index; 2. Covariance Between the Terms of Trade and the Real Effective Exchange Rate with World Food Price; 3a. Effects of a Food Price Shock on Natural Output and Natural TOT under Complete Markets
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3b. Effects of a Food Price Shock on Natural Output and Natural TOT in Financial Autarky4a. Impulse-Responses to a Standard Deviation of z* Shocks under Complete Markets and PPI Targeting for Baseline Calibration and σ=2; 4b. Impulse-Responses to a Standard Deviation of z* Shocks under Complete Markets and Headline CPI Targeting for Baseline Calibration and σ=2; 4c. Impulse-Responses to a Standard Deviation of z* Shocks under Complete Markets and Expected CPI Targeting for Baseline Calibration and σ=2
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4d. Impulse-Responses to a Standard Deviation of z* Shocks under Complete Markets and an Exchange Rate Peg for Baseline Calibration and σ=25a. Impulse-Responses to a Standard Deviation of z* Shocks under Financial Autarky and PPI Targeting for Baseline Calibration and σ=2; 5b. Impulse-Responses to a Standard Deviation of z* Shocks under Financial Autarky and CPI Targeting for Baseline Calibration and σ=2; 5c. Impulse-Responses to a Standard Deviation of z* Shocks under Financial Autarky and Expected CPI Targeting for Baseline Calibration and σ=2
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5d. Impulse-Responses to a Standard Deviation of z* Shocks under Financial Autarky and Expected CPI Targeting for Baseline Calibration and σ=2Tables; 1. Food Expenditure Shares in National Consumption Baskets; 2.Model Calibration; 3. Welfare Gaps: Complete Markets with All Baseline Shocks and Strict Inflation Targeting; 4.Welfare Gaps: Complete Markets with Trivial Food Price Volatility and Strick Inflation Targeting; 5. Welfare Gaps: Complete Markets with All Baseline Shocks and Flexible Inflation Targeting; 6. Model Statistics Under Simulated Random Shocks
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7. Welfare Gaps: Incomplete Markets (Ψ=0.9) with All Baseline Shocks and Full-Fledge Inflation Targeting
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English
Additional Edition:
ISBN 1-4843-7156-9
Additional Edition:
ISBN 1-299-67799-1
Language:
English
