Terms of trade shocks and monetary policy in India

Understanding monetary policy design in emerging markets and developing economies is a growing area of research. One aspect that is missing is how distortions in the agricultural sector translate into output and inflation dynamics, and the implications this has for setting monetary policy. In particular, central banks in emerging markets often grapple with understanding the inflationary impact of a shock emanating from the agriculture sector. This project explores the mechanism through which changes in the terms of trade caused by foodgrain procurement by the government affect the economy.

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