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Effectiveness of monetary policy in stabilising food inflation: Evidence from advanced and emerging economies

Publication date

Oct, 2017

Details

NIPFP Working Paper No. 209

Authors

Rudrani Bhattacharya

Abstract

In the backdrop of several episodes of high and volatile food inflation in emerging economies, a wealth of literature emphasises on broad range of monetary and exchange rate policies to stabilise food inflation by moderating demand pressure. While the theoretical literature mainly focus on welfare-maximising monetary policy, there exists hardly any empirical consensus on effectiveness of monetary policy to stabilise food inflation. Very recently, a limited strand of empirical literature has attempted to shed light in this arena. The present study attempts to contribute in this literature by analysing effectiveness of monetary policy shock to stabilise food inflation in a panel of developed and emerging economies. We find that an unexpected monetary tightening has a positive and significant effect on food inflation in both advanced and emerging economies. Our findings suggest that in the backdrop of inflationary pressure stemming from the food sector, a monetary tightening may turn out to be destabilising for the food as well as overall inflation in the economy.
 
Keywords: Food inflation, Monetary policy, Emerging economies, Panel Vector Auto-Regression.
 
JEL Classification codes: E31, E52, E58, C51

 

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