Date of Submission


Date of Award


Institute Name (Publisher)

Indian Statistical Institute

Document Type

Doctoral Thesis

Degree Name

Doctor of Philosophy

Subject Name

Quantitative Economics


Economics and Planning Unit (EPU-Delhi)


Ghate, Chetan (EPU-Delhi; ISI)

Abstract (Summary of the Work)

The eectiveness of monetary policy in emerging market economies (EMEs) depends on both internal and external factors. Central banks in EMEs have been grappling with volatile capital ows and instability in exchange rates, as a result of unconventional monetary policies adopted by advanced economies (AEs) in the post Global Financial Crisis (GFC) period of 2008-2009 (see Dedola et al. (2017) and Korinek (2018)).1 Concerns related to the inadequacy of monetary policy in EMEs in stabilizing exchange rates have also been raised in a recent speech delivered by Agustin Carstens at the London School of Economics.2 Domestically, what makes monetary policy eectiveness challenging in EMEs are factors such as the presence of incomplete nancial markets, a distorted agriculture sector and a large informal sector (see Hammond et al. (2009), Ghate and Kletzer (2016)). This dissertation examines the role of monetary policy when specic internal and external disturbances aect the economy. The disturbances are, namely, a procurement distortion in the agriculture sector and high global uncertainty, respectively. The broad message of the dissertation is that the current monetary policy frameworks fol wed by central banks of EMEs are inadequate in osetting the adverse eects of these disturbances (whether driven by internal or external factors). This dissertation identies these inadequacies and proposes alternate monetary policy rules which improves welfare of the economy.Most EMEs including India have a large agriculture sector which are inherently volatile. The share of the agriculture sector as a percentage of GDP between 2011- 2015 for EMEs and AEs was 13.4 per cent and 1.8 per cent, respectively (FAO (2017)). A key feature of the agricultural sector in EMEs that prevents an ecient allocation of resources is government induced direct market price support to certain commodities. Market price support estimates (MPSE) in the agriculture sector approximated 2.2 trillion US dollars (between 2011-2015) across the world. Between 2011-2015, out of the total producer support estimates (PSE), the share of MPSE was 55 per cent (OECD (2016a)). Further, between 2011-2015, the share of market price support as a percentage of GDP for EMEs was 0.78 per cent, which is almost double the share in Aes, which was 0.40 per cent (OECD (2016a)).In India, the market price support of certain commodities is accompanied by government purchases of the commodity, known as a food procurement policy. Ramaswami et al. (2014) have shown that the accumulated welfare losses of the procurement policy to the Indian economy between 1998 and 2011 was 1.5 billion US dollars. In recent years, rising minimum support prices have fueled food in ation in India (see Anand et al. (2016), Basu (2011), Dev and Rao (2015), Ramaswami et al. (2014), Ghate and Kletzer (2016)). High food in ation is a cause for concern, especially in a developing country like India where food expenditure shares are very high.3 Chapter 2 of this dissertation discusses the general equilibrium eects of a food policy induced procurement distortion (modelled as a shock) in the agriculture sector on aggregate economy, using a multi-sector new Keynesian-DSGE (Dynamic Stochastic General Equilibrium) model.To generate optimal monetary policy rules, a policymaker needs to minimize the welfare loss function for the given economy.


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Creative Commons Attribution 4.0 International License
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