Inflation Trends in Asia: Implications for Central Banks

56 Pages Posted: 4 Dec 2019

See all articles by Juan A. Garcia

Juan A. Garcia

European Central Bank (ECB)

Aubrey Poon

University of Strathclyde - Centre for Applied Macroeconomic Analysis

Date Written: December, 2019

Abstract

Trend inflation estimates for 12 of the largest Asian economies over 1995-2018 offer important insights on inflation dynamics and inflation expectations. The disinflationary shocks that hit the region since 2014 were partly transitory, but their effects have been different depending on the behaviour of trend inflation in each country. Countries with relatively high inflation (India, Philippines, Indonesia) benefited, and some were impacted very mildly (China, Taiwan, Hong Kong SAR, Malaysia). Among countries with inflation below target, in those with trend inflation low but constant (Australia, New Zealand) low inflation maybe lasting, but temporary, while those in which trend inflation has declined (South Korea, Thailand) risk low inflation to become entrenched and a de-anchoring of expectations. This diverse international evidence could offer important lessons for monetary policy worldwide.

Keywords: Asian economies, state space model, stochastic volatility, survey inflation expectations, trend inflation

JEL Classification: C11, C32, E31, F41

Suggested Citation

Garcia, Juan Angel and Poon, Aubrey, Inflation Trends in Asia: Implications for Central Banks (December, 2019). Available at SSRN: https://ssrn.com/abstract=3498206 or http://dx.doi.org/10.2139/ssrn.3498206

Juan Angel Garcia (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Aubrey Poon

University of Strathclyde - Centre for Applied Macroeconomic Analysis ( email )

16 Richmond Street
Glasgow 1XQ, Scotland
United Kingdom

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