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

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  • 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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 24 (2013)
Issue (Month): C ()
Pages: 26-40

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Handle: RePEc:eee:asieco:v:24:y:2013:i:c:p:26-40

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Inflation; Global VAR (GVAR); Monetary policy; Asian economies; China;

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Cited by:
  1. Mohammad Mirbagherijam, 2014. "Survey the Dynamic of Inflation in Iran Since 1990," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(6), pages 210-224, June.

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