Terms of trade shocks and monetary policy in India

Ghate, Chetan, Gupta, Sargam and Mallick, Debdulal 2018, Terms of trade shocks and monetary policy in India, Computational economics, vol. 51, no. 1, pp. 75-121, doi: 10.1007/s10614-016-9630-z.

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Title Terms of trade shocks and monetary policy in India
Author(s) Ghate, Chetan
Gupta, Sargam
Mallick, DebdulalORCID iD for Mallick, Debdulal orcid.org/0000-0002-3919-4784
Journal name Computational economics
Volume number 51
Issue number 1
Start page 75
End page 121
Total pages 47
Publisher Springer
Place of publication Berlin, Germany
Publication date 2018-01
ISSN 0927-7099
Keyword(s) Multi-sector New Keynesian DSGE models
Terms of trade shocks
Reserve Bank of India
Indian economy
Agricultural procurement
Summary 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.
Language eng
DOI 10.1007/s10614-016-9630-z
Field of Research 140399 Econometrics not elsewhere classified
149999 Economics not elsewhere classified
150299 Banking, Finance and Investment not elsewhere classified
140212 Macroeconomics (incl Monetary and Fiscal Theory)
Socio Economic Objective 910108 Monetary Policy
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2016, Springer
Persistent URL http://hdl.handle.net/10536/DRO/DU:30089206

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Department of Economics
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