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Inflationary pressures in South Asia

  • Ashima Goyal

    ()

    (Professor, Indira Gandhi Institute of Development Research, Mumbai, India)

The similarities yet differences across South Asian countries, and their differential response to recent food and oil price shocks, provides a useful opportunity to better understand the structure of inflation in these economies. Analysis of the internal goods market and external balance of payments equilibrium and evidence on demand and supply shocks suggests that output is largely demand determined but inefficiencies on the supply side perpetuate inflation. Pro-cyclical 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 this must be done effectively. The paper concludes with an analysis of effective short- and long-run policy options.

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Article provided by United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in its journal Asia-Pacific Development Journal.

Volume (Year): 17 (2010)
Issue (Month): 2 (December)
Pages: 1-42

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Handle: RePEc:unt:jnapdj:v:17:y:2010:i:2:p:1-42
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  1. Ashima Goyal, 2008. "The Natural Interest Rate in Emerging Markets," Working Papers id:1675, eSocialSciences.
  2. Ashima Goyal, 2006. "Incentives from Exchange Rate Regimes in an Institutional Context," Macroeconomics Working Papers 22375, East Asian Bureau of Economic Research.
  3. Ashima Goyal, 2010. "Exchange Rate Regimes and Macroeconomic Performance in South Asia," Working Papers id:2545, eSocialSciences.
  4. Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 398-425.
  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, vol. 35(71), pages 226-238, 08.
  6. Goyal, Ashima & Pujari, Ayan Kumar, 2005. "Identifying long run supply curve of India," MPRA Paper 24021, University Library of Munich, Germany.
  7. T. W.Swan, 1960. "Economic Control In A Dependent Economy," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 51-66, 03.
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