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Determination of inflation in an open economy Phillips curve framework: the case of developed and developing Asian countries

  • Pami Dua
  • Upasna Gaur
Registered author(s):

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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Article provided by Taylor & Francis Journals in its journal Macroeconomics and Finance in Emerging Market Economies.

Volume (Year): 3 (2010)
Issue (Month): 1 ()
Pages: 33-51

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Handle: RePEc:taf:macfem:v:3:y:2010:i:1:p:33-51
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