Distributional consequences of monetary policy in emerging market economies and the role of food prices
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My dissertation is devoted to studying the distributional consequences of monetary policy on household food consumption in emerging market economies, and the channel through which these distributional eﬀects occur. The main contribution of my dissertation is ﬁnding evidence of the presence a “food price channel” of monetary policy in emerging market economies (EME’s). Three essays examine the impact of the “food price channel” of monetary policy on the distribution of food consumption in EME’s. Chapters 2 and 3 of the dissertation, titled “The Food Price Channel: Eﬀects of Monetary Policy on the Poor in India” and “Monetary Policy and Distribution of Food Consumption in China: The Role of Food Prices” estimate the dynamic eﬀects of monetary policy shocks on relative food prices and the distribution of food consumption in two of the fastest growing emerging market economies-India and China respectively, by relying on household survey data and time series methods. Results for India and China show that the relative price of food responds positively, and the distribution of food consumption responds negatively to expansionary monetary policy shocks, providing evidence in favor of the impact of a “food price channel” of monetary policy on the distribution of food consumption in both economies. However, in India while expansionary monetary shocks via the “food price channel” appear to increase inequality, in China expansionary monetary shocks via the same channel are found to reduce inequality. Chapter 4 titled “The Food Price Channel in India Revisited” reinvestigates the impact of the “food price channel” of monetary policy on the distribution of food consumption in India, using a two sector dynamic stochastic general equilibrium (DSGE) model with ﬂexible food and sticky non-food prices, and heterogeneous agents who diﬀer in their proximity to subsistence food threshold. Results from the DSGE analysis point to expansionary monetary shocks having heterogeneous negative eﬀects on food consumption which reduce food consumption at the lower end of the distribution much less than that at the upper end, thus reporting a decline in inequality from the “food price channel”.