On the First-Round Effects of International Food Price Shocks : the Role of the Asset Market Structure / Rafael Portillo, Luis-Felipe Zanna.

Format:

Book

Government document

Author/Creator:

Portillo, Rafael.

Contributor:

Zanna, Luis-Felipe.

Series:

IMF Working Papers; Working Paper ; No. 2015/033

IMF Working Papers

Language:

English

Subjects (All):

Food prices.

Physical Description:

1 online resource (36 p.)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2015.

Summary:

We develop a tractable small open-economy model to study the first-round effects of international food price shocks in developing countries. We define first-round effects as changes in headline inflation that, holding core inflation constant, help implement relative price adjustments. The model features three goods (food, a generic traded good and a non-traded good), varying degrees of tradability of the food basket, and alternative international asset market structures (complete and incomplete markets, and financial autarky). First-round effects depend crucially on the asset market structure and the different transmission mechanisms they trigger. Under complete markets, inter-temporal substitution prevails, making the inflationary impact of international food prices proportional to the food share in consumption, which in developing economies is typically large. Under financial autarky, the income channel is dominant, and first-round effects are instead proportional to the country's food balance—the difference between the country's food endowment and its consumption—which in developing countries is typically small. The latter result holds regardless of the degree of food tradability. Incomplete markets yield a combination of the two extremes. Our results cast some doubt on the view that international food price shocks are inherently inflationary in developing countries.

Contents:

Cover; Table of Contents; I. Introduction; II. The Model; A. The Representative Consumer; B. The Consumption Basket and Prices; C. The Non-Traded Sector; D. Monetary Policy: Identifying First-Round Effects; E. Market Clearing Conditions and Model Closure; F. Definition of the First-Round Effects Equilibrium and the Steady State; III. Analytical Solution; A. The Log-linear Version of the Model; A.1. The Link between Inflation, Relative Prices and First-Round Effects; B. Solving for the First-Round Effects; C. Remarks; IV. Calibration and a Graphic Representation; A. Calibration; Tables

Table 1. Benchmark CalibrationB. Graphic Representation; Figures; Figure 1. First-Round Effects: Financial Autarky, Complete and Incomplete Markets; C. Sensitivity Analysis; Figure 2. First-Round Effects: Varying the Intra-temporal Elasticity of Substitution; Figure 3. First-Round Effects: Varying the Portfolio Adjustment Costs Parameter and the Persistence of International Food Prices; V. Extension: Incomplete Tradability of the Food Basket; A. Analytical Solution Under Incomplete Food Tradability; Figure 4. First-Round Effects: Varying the Tradable Food Share; VI. Conclusions; Appendix

A. Proofs of Propositions and CorollariesA.1. Proof of Proposition 1; A.2. Proof of Proposition 2; A.3. Proof of Proposition 3; A.4. Proof of Corollary 1; References

Notes:

"February 2015."

Description based on online resource; title from PDF title page (ebrary, viewed April 2, 2015).

ISBN:

9781484383582

1484383583

9781498304351

1498304354

9781498327305

1498327303