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Trade linkages and the globalisation of inflation in Asia and the Pacific

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  • Raphael A Auer
  • Aaron Mehrotra

Abstract

Some observers argue that increased real integration has led to greater comovement of prices internationally. We examine the evidence for cross-border price spillovers among economies participating in the pan-Asian cross-border production networks. Starting with country-level data, we find that both producer price and consumer price inflation rates move more closely together between those Asian economies that trade more with one another, ie that share a higher degree of trade intensity. Next, using a novel data set based on the World Input-Output Database (WIOD), we examine the importance of the supply chain for cross-border price spillovers at the sectoral level. We document the increasing importance of imported intermediate inputs for economies in the Asia-Pacific region and examine the impact on domestic producer prices of changes in costs of imported intermediate inputs. Our results suggest that real integration through the supply chain matters for domestic price dynamics in the Asia-Pacific region.

Suggested Citation

  • Raphael A Auer & Aaron Mehrotra, 2014. "Trade linkages and the globalisation of inflation in Asia and the Pacific," BIS Working Papers 447, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:447
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    More about this item

    Keywords

    globalisation; inflation; Asian manufacturing supply chain; price spillovers;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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