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Movement of Inflation and New Keynesian Phillips Curve in ASEAN

Author

Listed:
  • Adhitya Wardhono

    (Department of Economics, Faculty of Economics and Business, University of Jember, Jl. Kalimantan 37, Jember 68121, East Java Province, Indonesia)

  • M. Abd. Nasir

    (Department of Economics, Faculty of Economics and Business, University of Jember, Jl. Kalimantan 37, Jember 68121, East Java Province, Indonesia)

  • Ciplis Gema Qori’ah

    (Department of Economics, Faculty of Economics and Business, University of Jember, Jl. Kalimantan 37, Jember 68121, East Java Province, Indonesia)

  • Yulia Indrawati

    (Department of Economics, Faculty of Economics and Business, University of Jember, Jl. Kalimantan 37, Jember 68121, East Java Province, Indonesia)

Abstract

The development of the theory of dynamic inflation begins by linking wage inflation and unemployment. In further developments, factor of expectation is classified into inflation model. The study used inflation data is important for ASEAN, because ASEAN is one of the strengths of the international economy. This study analyzes the dynamics of inflation in the ASEAN using framework the New-Keynesian Phillips Curve (NKPC) model. The data used is the quarterly panel data from 5 ASEAN members in the period 2005.QI–2018.QIV. The study of this dynamic inflation applies quarter to quarter inflation data, meaning that the inflation rate is the percentage change in the general price of the current quarter compared to last quarter general price divided by the last quarter. The empirical results are estimated by using the Generalized Method of Moment (GMM), both of the system and first different indicates that the pattern formation of inflation expectations are backward-looking and forward-looking. In addition, the estimated NKPC models show the backward-looking behavior is more dominant than the forward looking. Changes in inflation are not entirely influenced by expectations of inflation in each country. Changes in inflation are also influenced by the output gap, changes in money supply, and exchange rate. Based on the findings of this study, it can be concluded that the NKPC models can explain the dynamics of inflation in each country in the ASEAN region.

Suggested Citation

  • Adhitya Wardhono & M. Abd. Nasir & Ciplis Gema Qori’ah & Yulia Indrawati, 2021. "Movement of Inflation and New Keynesian Phillips Curve in ASEAN," Economies, MDPI, vol. 9(1), pages 1-9, March.
    • Handle: RePEc:gam:jecomi:v:9:y:2021:i:1:p:34-:d:514549
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    References listed on IDEAS

    as
    1. Adhitya Wardhono & Badara Shofi Dana & M.Abd. Nasir, 2017. "Rethinking the exchange rate disconnect puzzle theory in ASEAN-6," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 9(1), pages 98-103, April.
    2. Adhitya Wardhono & Dwi Arisandi & M. Abd. Nasir, 2018. "Empirical Study of Scapegoat Theory Paradigm in the Exchange Rate Variable in the ASEAN 5," International Economic Journal, Taylor & Francis Journals, vol. 32(1), pages 102-119, January.
    3. Galí, Jordi & Gertler, Mark, 1999. "Inflation Dynamics: A Structural Economic Analysis," CEPR Discussion Papers 2246, C.E.P.R. Discussion Papers.
    4. Graham M. Voss & M. Chaban, 2012. "National and Provincial Inflation in Canada: Experiences under Inflation Targeting," Department Discussion Papers 1201, Department of Economics, University of Victoria.
    5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    6. Mehrotra, Aaron & Peltonen, Tuomas & Santos Rivera, Alvaro, 2010. "Modelling inflation in China--A regional perspective," China Economic Review, Elsevier, vol. 21(2), pages 237-255, June.
    7. repec:zbw:bofitp:2007_019 is not listed on IDEAS
    8. Abbas, Syed Kanwar & Sgro, Pasquale M., 2011. "New Keynesian Phillips Curve and inflation dynamics in Australia," Economic Modelling, Elsevier, vol. 28(4), pages 2022-2033, July.
    9. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
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    Cited by:

    1. Narayan, Seema & Cirikisuva, Salote & Naivutu, Revoni, 2023. "A hybrid NKPC inflation model for the small Island state of Fiji," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 873-886.

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