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

21 Pages Posted: 19 Nov 2011

See all articles by Carolina Osorio

Carolina Osorio

affiliation not provided to SSRN

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department

Date Written: November 2011

Abstract

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.

Keywords: Asia, China, Commodity prices, Cross country analysis, Demand, Economic models, Inflation, Monetary policy, Spillovers

Suggested Citation

Osorio, Carolina and Unsal, D. Filiz, Inflation Dynamics in Asia: Causes, Changes, and Spillovers from China (November 2011). IMF Working Paper No. 11/257, Available at SSRN: https://ssrn.com/abstract=1961905

Carolina Osorio

affiliation not provided to SSRN

D. Filiz Unsal (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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