02204cas a2200277 a 4500 AALejournalIMF016710 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475542639 1018-5941 BD-DhAAL BD-DhAAL Portillo, Rafael. Implications of Food Subsistence for Monetary Policy and Inflation / Rafael Portillo, Luis-Felipe Zanna, Stephen O'Connell, Richard Peck. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (62 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 We introduce subsistence requirements in food consumption into a simple new-Keynesian model with flexible food and sticky non-food prices. We study how the endogenous structural transformation that results from subsistence affects the dynamics of the economy, the design of monetary policy, and the properties of inflation at different levels of development. A calibrated version of the model encompasses both rich and poor countries and broadly replicates the properties of inflation across the development spectrum, including the dominant role played by changes in the relative price of food in poor countries. We derive a welfare-based loss function for the monetary authority and show that optimal policy calls for complete (in some cases nearcomplete) stabilization of sticky-price non-food inflation, despite the presence of a foodsubsistence threshold. Subsistence amplifies the welfare losses of policy mistakes, however, raising the stakes for monetary policy at earlier stages of development. Mode of access: Internet O'Connell, Stephen. Peck, Richard. Zanna, Luis-Felipe. IMF Working Papers; Working Paper ; No. 2016/070 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/070/001.2016.issue-070-en.xml IMF e-Library