Phillips curve for the Asian economies: A nonlinear perspective
Document Type
Article
Publication Date
9-26-2021
Abstract
This paper examines the impact of exchange-rate movements on inflation in eight Asian countries. Results from an open-economy Phillips curve are; first, the Markov-switching open-economy model confirm that the two-state Phillips curve outperforms alternative models to study inflation dynamics. There is considerable heterogeneity in the pass-through estimates for Asian countries, with Singapore exhibiting the lowest exchange rate pass-through (ERPT). Regime-dependent pass-through estimates are sensitive to average inflation and it should be factored in when forecasting inflation rates. Second, the extent of pass-through is considerably lower and far from complete in a low-inflation regime, endorsing Taylor hypothesis. Third, in the majority of the countries, we find support for global disinflation in domestic inflation that has strengthened over time. The main takeaway is that globalization matters for Asian inflation dynamics.
Keywords
Exchange rate pass-through, Asymmetry, Fear of floating phenomenon, Globalization, Phillips curve
Divisions
economics
Funders
Universiti Putra Malaysia (GP-IPB/2014/9440900)
Publication Title
Emerging Markets Finance and Trade
Volume
57
Issue
12
Publisher
Routledge Journals, Taylor & Francis Ltd
Publisher Location
2-4 PARK SQUARE, MILTON PARK, ABINGDON OX14 4RN, OXON, ENGLAND