Inflation Dynamics in Asia: Causes, Changes, and Spillovers From China

By Carolina Osorio Buitron, Filiz D Unsal

November 1, 2011

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Carolina Osorio Buitron, and Filiz D Unsal. Inflation Dynamics in Asia: Causes, Changes, and Spillovers From China, (USA: International Monetary Fund, 2011) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The perception that Asia's inflation dynamics is driven by idiosyncratic supply shocks implies, as a corollary, that there is little scope for a policy reaction to a build-up of inflationary pressures. However, Asia's fast growth and integration over the last two decades suggest that the drivers of inflation may have changed, and that domestic demand pressures may now play a larger role than in the past. This paper presents a quantitative analysis of inflation dynamics in Asia using a Global VAR (GVAR) model, which explicitly incorporates the role of regional and global spillovers in driving Asia's inflation. Our results suggest that over the past two decades the main drivers of inflation in Asia have been monetary and supply shocks, but also that, in recent years, the contribution of these shocks has fallen, whereas demand-side pressures have started to emerge as an important contributor to inflation in Asia.

Subject: Commodity prices, Economic theory, Financial sector policy and analysis, Inflation, Output gap, Prices, Production, Spillovers, Supply shocks

Keywords: Asia and Pacific, Commodity prices, Global, Global VAR (GVAR), Inflation, Inflation dynamics, Inflation fluctuation, Inflation process, Inflation spillover, Monetary Policy, Output gap, Producer price inflation, Spillovers, Spillovers from China, Supply shocks, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/257
Stock No:

WPIEA2011257
ISBN:

9781463923969
ISSN:

1018-5941

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