World Food Prices and Monetary Policy / Luis Catão, Roberto Chang.

Format:

Book

Author/Creator:

Catão, Luis.

Contributor:

National Bureau of Economic Research.

Chang, Roberto.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16563.

NBER working paper series no. w16563

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

In recent years, large fluctuations in world food prices have renewed interest in the question of how monetary policy in small open economies should react to imported price shocks. We address this issue in an open economy setting similar to previous ones except that food plays a distinctive role in utility. A key novelty of our model is that the real exchange rate and the terms of trade can move in opposite directions in response to food price shocks. This has several consequences for observables and for policy. Under a variety of model calibrations, broad CPI targeting emerges as welfare-superior to alternative policy rules once the variance of food price shocks is as large as in real world data.

Notes:

Print version record

December 2010.