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Effects of Monetary Policy on Food Inequality in India

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  • Kuhelika De
  • Venoo Kakar

Abstract

Food insecurity and hunger are significant components of standard poverty measures and continue to be pressing issues in emerging market economies. However, these issues have received less attention in examining the indirect effects of monetary policy. In this paper, we study the impact of monetary policy on food inequality in India. Specifically, we examine the impact of monetary policy shocks on relative food prices and the distribution of food consumption, focusing on subsistence food consumption of poor households. Using the most recent household survey data, we estimate the dynamic effects of monetary policy shocks on relative food prices and the distribution of food consumption in rural and urban India using a dynamic common factor model. Our results show that expansionary monetary policy shocks increase the relative price of food, reduce the food consumption of poor households, and raise food consumption inequality across households. Increase in the relative price of food following a monetary expansion disproportionately hurts the poor relative to the non-poor. This is the first study to provide evidence of a ‘food price channel’ in monetary policy transmission to understand food inequality. This study holds important policy implications for Indian central bankers and policymakers as well as for those in similar emerging market economies.

Suggested Citation

  • Kuhelika De & Venoo Kakar, 2021. "Effects of Monetary Policy on Food Inequality in India," Journal of Development Studies, Taylor & Francis Journals, vol. 57(11), pages 1852-1870, November.
    • Handle: RePEc:taf:jdevst:v:57:y:2021:i:11:p:1852-1870
    DOI: 10.1080/00220388.2021.1906861
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    Cited by:

    1. Peydró, José-Luis & Jasova, Martina & Mendicino, Caterina & Panetti, Ettore & Supera, Dominik, 2021. "Monetary Policy, Labor Income Redistribution and the Credit Channel: Evidence from Matched Employer-Employee and Credit Registe," CEPR Discussion Papers 16549, C.E.P.R. Discussion Papers.
    2. Nittai K. Bergman & David Matsa & Michael Weber & Michael Weber, 2022. "Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth," CESifo Working Paper Series 9512, CESifo.
    3. Mäki-Fränti, Petri & Silvo, Aino & Gulan, Adam & Kilponen, Juha, 2022. "Monetary policy and inequality in a small open economy," Research Discussion Papers 3/2022, Bank of Finland.
    4. repec:zbw:bofrdp:2022_003 is not listed on IDEAS
    5. Mäki-Fränti, Petri & Silvo, Aino & Gulan, Adam & Kilponen, Juha, 2022. "Monetary policy and inequality: The Finnish case," Bank of Finland Research Discussion Papers 3/2022, Bank of Finland.
    6. Oh, Joonseok & Picco, Anna Rogantini, 2024. "Macro uncertainty, unemployment risk, and consumption dynamics," Working Paper Series 2971, European Central Bank.
    7. Anastasia Burya & Rui Mano & Mr. Yannick Timmer & Miss Anke Weber, 2022. "Monetary Policy Under Labor Market Power," IMF Working Papers 2022/128, International Monetary Fund.
    8. Matusche, Alexander & Wacks, Johannes, 2023. "Does wealth inequality affect the transmission of monetary policy?," Journal of Macroeconomics, Elsevier, vol. 75(C).
    9. Castañeda, Juan Carlos & Chang, Rodrigo, 2023. "Evaluating core inflation measures: A statistical inference approach," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 4(4).

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