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Inflationary Pressures in South Asia

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  • Ashima Goyal

    (Professor of Economics at the Indira Gandhi Institute for Development Research, Mumbai, India)

Abstract

The similarities yet differences across South Asian countries, and their differential response to recent food and oil price shocks, gives a useful opportunity to better understand the structure of inflation in these economies. Analysis of the internal and external balance and evidence on demand and supply shocks implies output is largely demand determined but inefficiencies on the supply side perpetuate inflation. Procyclical policy amplifies the negative impact of supply shocks on output. Inflation surges are reduced at high output cost while propagation mechanisms and well-intentioned administrative interventions turn relative price shocks into chronic cost-push inflation. The analysis brings out the importance of food prices for the inflationary process. It is necessary to protect the poor from inflation and especially food inflation. But it must be done effectively. The paper concludes with analysis of effective short and long run policy options.

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Paper provided by United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in its series MPDD Working Paper Series with number WP/11/14.

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Handle: RePEc:unt:wpmpdd:wp/11/14

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Keywords: Inflation; South Asia; food price policy; demand and supply shocks;

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References

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  1. Ashima Goyal, 2010. "Exchange Rate Regimes and Macroeconomic Performance in South Asia," Macroeconomics Working Papers 22779, East Asian Bureau of Economic Research.
  2. T. W.Swan, 1960. "Economic Control In A Dependent Economy," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 36(73), pages 51-66, 03.
  3. Ashima Goyal, 2005. "Incentives from exchange rate regimes in an institutional context," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2005-002, Indira Gandhi Institute of Development Research, Mumbai, India.
  4. Ashima Goyal, 2008. "The Natural Interest Rate in Emerging Markets," Macroeconomics Working Papers 22379, East Asian Bureau of Economic Research.
  5. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 35(71), pages 226-238, 08.
  6. Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, Wiley Blackwell, vol. 61(2), pages 398-425.
  7. Goyal, Ashima & Pujari, Ayan Kumar, 2005. "Identifying long run supply curve of India," MPRA Paper 24021, University Library of Munich, Germany.
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Cited by:
  1. Ashima Goyal, 2011. "History of monetary policy in India since independence," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2011-018, Indira Gandhi Institute of Development Research, Mumbai, India.
  2. Hemantha K.J. Ekanayake, 2012. "The Link Between Fiscal Deficit and Inflation: Do public sector wages matter?," ASARC Working Papers, The Australian National University, Australia South Asia Research Centre 2012-14, The Australian National University, Australia South Asia Research Centre.
  3. Goyal, Ashima, 2012. "Purchasing power parity, wages and inflation in emerging markets," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2012-025, Indira Gandhi Institute of Development Research, Mumbai, India.
  4. Goyal, Ashima, 2012. "Propagation Mechanisms in Inflation: Governance as key," MPRA Paper 46360, University Library of Munich, Germany.

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