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Are all movements in food and energy prices transitory? Evidence from India

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  • Bhatt, Vipul
  • Kishor, N. Kundan

Abstract

This paper seeks to answer two questions in the context of the Indian economy. First, are all movements in food and energy prices transitory? Second, is there a significant relationship between permanent and transitory shocks to different components of the aggregate price level? Using monthly price data for India and a multivariate correlated unobserved component model based on Morley et al. ((2003). The Review of Economics and Statistics, 85(2): 235) and Bradley et al. (forthcoming), we find that both food and energy prices have significant permanent components. Further, we find a significant feedback effect between permanent components of food prices and manufacturing good prices. These findings suggest that neglecting food and energy prices may render the core inflation measure based solely on manufacturing prices a biased measure of long run inflation. Finally, using a forecasting experiment, we show that a measure of the trend inflation that explicitly accounts for long run price movements in food and energy prices provides a superior forecast of future inflation when compared with alternative measures of the trend inflation.

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  • Bhatt, Vipul & Kishor, N. Kundan, 2015. "Are all movements in food and energy prices transitory? Evidence from India," Journal of Policy Modeling, Elsevier, vol. 37(1), pages 92-106.
    • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:1:p:92-106
    DOI: 10.1016/j.jpolmod.2015.01.005
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    References listed on IDEAS

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    2. S. Gangadaran, 2017. "Inflation in India: Behavior of Major Components," Working Papers wp18, South East Asian Central Banks (SEACEN) Research and Training Centre.
    3. N. Kundan Kishor, 2020. "Understanding the relationship between public and private commercial real estate markets," Journal of Property Research, Taylor & Francis Journals, vol. 37(4), pages 289-307, October.
    4. Simranjeet Kaur, 2023. "A Decade of Impact of Monetary Policy on Food Inflation: An Overview and Future Direction," Vision, , vol. 27(4), pages 498-509, August.
    5. CHINEZELUM Ezebilo & AKANEGBU Benedict & MUHAMMAD Maimuna Yakubu, 2023. "Effect of Monetary Policy on Food Inflation in Nigeria: A Nardl Structural Approach," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 13(5), pages 1-6.
    6. Chen, Junyi & Kibriya, Shahriar & Bessler, David A. & Price, Edwin C., 2015. "A Causal Exploration of Food Price Shocks and Conflict in Sudan," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 202612, Agricultural and Applied Economics Association.
    7. Chen, Junyi & Kibriya, Shahriar & Bessler, David & Price, Edwin, 2015. "A Causal Exploration of Conflict Events and Commodity Prices of Sudan," MPRA Paper 62461, University Library of Munich, Germany.

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