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Inflation in Developing Asia: Demand-Pull or Cost-Push?

Author

Listed:
  • Jongwanich, Juthathip

    (Asian Development Bank)

  • Park, Donghyun

    (Asian Development Bank)

Abstract

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 current inflation surge is primarily the result of external price shocks such as oil and food shocks. In addition, this paper also estimates the degree of pass-through of external price shocks to domestic prices. Its central empirical result is that contrary to popular misconception, Asia's inflation is largely due to excess aggregate demand and inflation expectations rather than external price shocks. This suggests monetary policy will remain a powerful tool in the fight against inflation in Asia. Another significant finding is that the pass-through of the external price shocks to domestic prices has been limited so far. However, the removal of government subsidies is likely to lead to greater pass-through in the future. The resulting inflationary pressures provide a further rationale for tightening monetary policy.

Suggested Citation

  • Jongwanich, Juthathip & Park, Donghyun, 2008. "Inflation in Developing Asia: Demand-Pull or Cost-Push?," ADB Economics Working Paper Series 121, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0121
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    More about this item

    Keywords

    asia; demand; external price shocks; inflation; monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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