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Determination of Inflation in an Open Economy Phillips Curve Framework-- The Case of Developed and Developing Asian Countries

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Author Info
Pami Dua (Department of Economics, Delhi School of Economics, Delhi, India)
Upasna Gaur (Global Research Group, ICICI Bank Mumbai)

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Abstract

This paper investigates the determination of inflation in the framework of an open economy forward-looking as well as conventional backward-looking Phillips curve for eight Asian countries - Japan, Hong Kong, Korea, Singapore, Philippines, Thailand, China Mainland and India. Using quarterly data from the 1990s to 2005 and applying the instrumental variables estimation technique, we find that the output gap is significant in explaining the inflation rate in almost all the countries. Furthermore, at least one measure of international competitiveness has a statistically significant influence on inflation in all the countries. The differences in the developed and developing world are highlighted by the significance of agriculture related supply shocks in determining inflation in the case of developing countries. For all countries, the forward-looking Phillips curve provides a better fit compared to the backward looking variant.

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Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 178.

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Length: 28 pages
Date of creation: Apr 2009
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Handle: RePEc:cde:cdewps:178

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  2. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1107-1118, September. [Downloadable!] (restricted)
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  3. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May. [Downloadable!] (restricted)
  4. Durai, S. Raja Sethu & Ramachandran, M., 2007. "Core inflation for India," Journal of Asian Economics, Elsevier, vol. 18(2), pages 365-383, April. [Downloadable!] (restricted)
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  6. Hans Genberg & LaurentL. Pauwels, 2005. "An Open-Economy New Keynesian Phillips Curve: Evidence From Hong Kong," Pacific Economic Review, Blackwell Publishing, vol. 10(2), pages 261-277, 06. [Downloadable!] (restricted)
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  7. N. Gregory Mankiw & Ricardo Reis, 2003. "What Measure of Inflation Should a Central Bank Target?," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1058-1086, 09. [Downloadable!] (restricted)
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  8. W A Razzak, 2002. "Monetary policy and forecasting inflation with and without the output gap," Reserve Bank of New Zealand Discussion Paper Series DP2002/03, Reserve Bank of New Zealand. [Downloadable!]
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  11. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September. [Downloadable!] (restricted)
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  12. Joerg Scheibe & David Vines, 2005. "A Phillips Curve For China," CAMA Working Papers 2005-02, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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  13. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February. [Downloadable!] (restricted)
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  14. Ashima Goyal & Ayan Kumar Pujari, 2005. "Analyzing Core Inflation in India: A Structural VAR Approach," Icfai University Journal of Monetary Economics, Icfai Press, vol. 0(2), pages 76- 90, May.
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