Terms of trade shocks and monetary policy in India
Data(s) |
28/10/2016
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Resumo |
Central banks in emerging market economies often grapple with understanding the monetary policy response to an inter-sectoral terms of trade shock. To address this, we develop a three sector closed economy NK-DSGE model calibrated to India. Our framework can be generalized to other emerging markets and developing economies. The model is characterized by a manufacturing sector and an agricultural sector. The agricultural sector is disaggregated into a grain and vegetable sector. The government procures grain from the grain market and stores it. We show that the procurement of grain leads to higher inflation, a change in the sectoral terms of trade, and a positive output gap because of a change in the sectoral allocation of labor. We compare the transmission of a single period positive procurement shock with a single period negative productivity shock and discuss the implications of such shocks for monetary policy setting. Our paper contributes to a growing literature on monetary policy in India and other emerging market economies. |
Identificador | |
Idioma(s) |
eng |
Publicador |
Springer |
Relação |
http://dro.deakin.edu.au/eserv/DU:30089206/ghate-termsoftradeshocks-2016.pdf http://www.dx.doi.org/10.1007/s10614-016-9630-z |
Direitos |
2016, Springer |
Palavras-Chave | #Multi-sector New Keynesian DSGE models #Terms of trade shocks #Reserve Bank of India #Indian economy #Agricultural procurement |
Tipo |
Journal Article |