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Inflation dynamics in Asia: Causes, changes, and spillovers from China

Author

Listed:
  • Osorio, Carolina
  • Unsal, D. Filiz
Abstract
The perception that Asia's inflation dynamics are driven by idiosyncratic supply shocks implies, as a corollary, a limited scope for policy responses to inflationary pressures. However, Asia's fast growth and integration with the global economy in the last couple of decades suggest that the drivers of inflation may have changed. This paper presents a quantitative analysis of inflation dynamics in Asia using a Global VAR (GVAR) model, which explicitly incorporates trade and financial linkages among economies, as well as the role of regional and global inflationary spillovers. Our results suggest that over the past two decades, the main drivers of inflation in Asia have been monetary and supply shocks; but that, in recent years, the contribution of these shocks to the region's inflation has fallen. Domestic demand pressures, however, have played a larger role in driving inflation in Asia over the last decade. Moreover, economies in the region are exposed to notable inflation spillovers from China, both directly from higher imported goods prices and indirectly through higher commodity prices.

Suggested Citation

  • Osorio, Carolina & Unsal, D. Filiz, 2013. "Inflation dynamics in Asia: Causes, changes, and spillovers from China," Journal of Asian Economics, Elsevier, vol. 24(C), pages 26-40.
    • Handle: RePEc:eee:asieco:v:24:y:2013:i:c:p:26-40
    DOI: 10.1016/j.asieco.2012.10.007
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    More about this item

    Keywords

    Inflation; Global VAR (GVAR); Monetary policy; Asian economies; China;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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