Marc Pourroy (Université de Poitiers)
du mardi 15 novembre 2016 au mardi 15 novembre 2016
Food Price Shocks, Subsidies and Monetary Policy: A DSGE Approach [PDF]
Abstract: We develop a small open economy DSGE model to analyze the effects of food price shocks for a developing economy. The model features realistic attributes of a low income country such as a large share of household food consumption; the presence of “hand-to-mouth” households which have financial limitations in smoothing consumption; and fiscal policy aimed at shielding households in response to food price shocks. The novelty of the paper is that we analyze how different policy monetary and fiscal policy responses may affect welfare. Viewed in this light, we argue that coordinated policies can, over the short-term, use fiscal coordination to target a consumer cohort with food subsidies in the presence of food price shocks improve aggregate welfare.