Abstract
This article investigates whether global food commodity prices and the exchange rate affect domestic food prices and overall inflation in India. We employ the Johansen (1991) cointegration method in conjunction with a single equation error correction model. We find that inflation in India is highly dependent on international food commodity prices and exchange rates. High international food prices contributed about 2 percentage points of the 3.7 percentage point increase in inflation observed during the global food crisis (2007–2008).
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