Format:
Online-Ressource (64 p)
Edition:
Online-Ausg.
ISBN:
1484371569
,
9781484371565
Series Statement:
IMF Working Papers Working Paper No. 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
Additional Edition:
Erscheint auch als Druck-Ausgabe Catão, Luis World Food Prices, the Terms of Trade-Real Exchange Rate Nexus, and Monetary Policy Washington, D.C. : International Monetary Fund, 2013 ISBN 9781484371565
Language:
English
DOI:
10.5089/9781484371565.001
