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Determination of Inflation in an Open Economy Phillips Curve Framework-- The Case of Developed and Developing Asian Countries

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  • Pami Dua

    (Department of Economics, Delhi School of Economics, Delhi, India)

  • Upasna Gaur

    (Global Research Group, ICICI Bank Mumbai)

Abstract

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.

Suggested Citation

  • Pami Dua & Upasna Gaur, 2009. "Determination of Inflation in an Open Economy Phillips Curve Framework-- The Case of Developed and Developing Asian Countries," Working papers 178, Centre for Development Economics, Delhi School of Economics.
  • Handle: RePEc:cde:cdewps:178
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    Cited by:

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    2. Shahbaz, Muhammad & Islam , Faridul & Shabbir, Muhammad Shahbaz, 2012. "Phillips Curve in a Small Open Economy: A Time Series Exploration of North Cyprus," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 35(4), pages 113-130, December.
    3. Ajit R. Joshi & Debashis Acharya, 2011. "Inflation Model for India in the Context of Open Economy," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 12(1), pages 39-59, March.
    4. Chattopadhyay, Siddhartha & Sahu, Sohini & Jha, Saakshi, 2016. "Estimation of Unobserved Inflation Expectations in India using State-Space Model," MPRA Paper 72710, University Library of Munich, Germany.
    5. Biswajit Maitra & Tafajul Hossain, 2020. "Inflation in India: causes and anti-inflationary policy perception," International Journal of Economic Policy Studies, Springer, vol. 14(2), pages 363-387, August.
    6. Chakraborty, Lekha & Varma, Kushagra Om, 2015. "Efficacy of New Monetary Framework and Determining Inflation in India: An Empirical Analysis of Financially Deregulated Regime," Working Papers 15/153, National Institute of Public Finance and Policy.
    7. Kushal Banik Chowdhury & Nityananda Sarkar, 2017. "Is the Hybrid New Keynesian Phillips Curve Stable? Evidence from Some Emerging Economies," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(3), pages 427-449, September.
    8. Taniya Ghosh & Sohini Sahu & Siddhartha Chattopadhyay, 2017. "Households' Inflation Expectations in India: Role of Economic Policy Uncertainty and Global Financial Uncertainty Spill-over," Working Papers id:11890, eSocialSciences.
    9. Biswajit Maitra, 2016. "Inflation Dynamics in India: Relative Role of Structural and Monetary Factors," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(2), pages 237-255, December.
    10. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
    11. Kapur, Muneesh, 2013. "Revisiting the Phillips curve for India and inflation forecasting," Journal of Asian Economics, Elsevier, vol. 25(C), pages 17-27.
    12. Mohammed Saiful Islam & Riduanul Mustafa, 2017. "Quest for a Valid Phillips Curve in the Long Run: An Empirical Approach," International Business Research, Canadian Center of Science and Education, vol. 10(4), pages 191-198, April.
    13. Behera, Harendra & Wahi, Garima & Kapur, Muneesh, 2018. "Phillips curve relationship in an emerging economy: Evidence from India," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 116-126.
    14. Singh, B. Karan & Kanakaraj, A. & Sridevi, T.O., 2011. "Revisiting the empirical existence of the Phillips curve for India," Journal of Asian Economics, Elsevier, vol. 22(3), pages 247-258, June.

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