02015cas a2200253 a 4500 AALejournalIMF013565 230101c9999 xx r poo 0 0eng d 5.00 USD 9781484371565 1018-5941 BD-DhAAL BD-DhAAL Catao, Luis. World Food Prices, the Terms of Trade-Real Exchange Rate Nexus, and Monetary Policy / Luis Catao, Roberto Chang. Washington, D.C. : International Monetary Fund, 2013. 1 online resource (64 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students How should monetary policy respond to large fluctuations in world food prices? We study this question in an open economy model in which imported food has a larger weight in domestic consumption than abroad and international risk sharing can be imperfect. A key novelty is that the real exchange rate and the terms of trade can move in opposite directions in response to world food price shocks. This exacerbates the policy trade-off between stabilizing output prices vis a vis the real exchange rate, to an extent that depends on risk sharing and the price elasticity of exports. Under perfect risk sharing, targeting the headline CPI welfare-dominates targeting the PPI if the variance of food price shocks is not too small and the export price elasticity is realistically high. In such a case, however, targeting forecast CPI is a superior choice. With incomplete risk sharing, PPI targeting is clearly a winner. Mode of access: Internet Chang, Roberto. IMF Working Papers; Working Paper ; No. 2013/114 Full text available on IMF http://elibrary.imf.org/view/journals/001/2013/114/001.2013.issue-114-en.xml IMF e-Library