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Inflation in developing Asia

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  • Jongwanich, Juthathip
  • Park, Donghyun

Abstract

Inflation emerged as the single biggest macroeconomic challenge confronting developing Asia during 2007-2008, although inflationary pressures have abated since the second half of 2008 due to the global crisis. This paper empirically examines the relative importance of different sources of inflation in developing Asia. In particular, it tests the widely held view that the region's inflationary surge during 2007-2008 was primarily the result of external price factors such as oil and food shocks. Our central empirical result is that, contrary to popular misconception, Asia's inflation is largely homegrown and has arisen due to excess aggregate demand and inflationary expectations, rather than external price shocks. This suggests monetary policy will remain a powerful tool in fighting inflation in Asia, as well as in defusing the risks of deflation.

Suggested Citation

  • Jongwanich, Juthathip & Park, Donghyun, 2009. "Inflation in developing Asia," Journal of Asian Economics, Elsevier, vol. 20(5), pages 507-518, September.
    • Handle: RePEc:eee:asieco:v:20:y:2009:i:5:p:507-518
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    References listed on IDEAS

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    1. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 209-270, National Bureau of Economic Research, Inc.
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    5. Mr. Ashok Bhundia, 2002. "An Empirical Investigation of Exchange Rate Pass-Through in South Africa," IMF Working Papers 2002/165, International Monetary Fund.
    6. Laurence Ball, 2000. "Near-rationality and inflation in two monetary regimes," Proceedings, Federal Reserve Bank of San Francisco.
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