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World Food Prices and Monetary Policy
Author:
Roberto Chang null

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and
Mr. Luis Catão
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Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 161
Language:
English
Publication Date:
01 Jul 2010
DOI:
https://doi.org/10.5089/9781455201440.001
ISBN:
9781455201440
ISSN:
1018-5941
Pages:
66
Keywords:
WP; exchange rate
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The large swings in world food prices in recent years renew interest in the question of how monetary policy in small open economies should react to such imported price shocks. We examine this issue in a canonical open economy setting with sticky prices and where food plays a distinctive role in utility. We show how world food price shocks affect natural output and other aggregates, and derive a second order approximation to welfare. Numerical calibrations show broad CPI targeting to be welfare-superior to alternative policy rules once the variance of food price shocks is sufficiently large as in real world data.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund