Monetary Policy and Inflation Dynamics in ASEAN Economies

Abstract

"June 2018." "This paper investigates the evolution of inflation dynamics in the five largest ASEAN countries between 1997 and 2017. To account for changes in the monetary policy frameworks since the Asian Financial Crisis (AFC), the analysis is based on country-specific Phillips curves allowing for time-varying parameters. The paper finds evidence of a higher degree of forward looking dynamics and a better anchoring of inflation expectations, consistent with the improvements in monetary policy frameworks in the region. In contrast, the quantitative impact of cyclical fluctuations and import prices has gradually diminished over time."--Abstract Cover; Contents; I. Introduction; II. Empirical Methodology and Data; Modeling Inflation Dynamics; Data; Estimation Approach; III. What drives inflation dynamics in ASEAN-5 countries?; Key Findings; The Role of Forward-Looking Dynamics; Inflation Dynamics and Cyclical Fluctuations; Inflation Dynamics, Non-oil-import and Oil Price Inflation; IV. Country-specific evidence; Indonesia; Malaysia; Philippines; Singapore; Thailand; V. Robustness checks; Different Measures of Macroeconomic Indicators; Measures of the Output Gap; Indicators of Inflation Expectations; Import Price Measures. Model SpecificationsImpact of Time-varying Parameters; Coefficients of Non-Oil-Import Price and Oil Price Inflation; Models including oil price inflation and exchange rate; VI. Conclusions; VI. References; Figures; Figure 1: Relative Median Contribution of Inflation Drivers in ASEAN-5 countries; Figure 2: Long-term Inflation Expectations (Trend Inflation Estimates); Figure 3: Consensus Long-term Inflation Expectations; Figure 4: ASEAN-5 CBs: Dincer-Eichengreen CB transparency index; Figure 5: Correlation Between Forward-looking Dynamics and DE transparency: Coefficients. Figure 6: Correlation Between Forward-looking Dynamics and DE transparency: contributionsFigure 7: Median Contribution of Output Gap in ASEAN-5 countries; Figure 8: Phillips curve Slope Estimates; Figure 9: Median Contribution of Import Inflation in ASEAN-5 Countries; Figure 10: Main Inflation Components: Indonesia; Figure 11: Time-varying Coefficient Estimates: Indonesia; Figure 12: Main Inflation Components: Malaysia; Figure 13: Time-varying Coefficient Estimates: Malaysia; Figure 14: Main Inflation Components: Philippines; Figure 15: Time-varying Coefficient Estimates: Philippines. Figure 16: Main Inflation Components: SingaporeFigure 17: Time-varying Coefficient Estimates: Singapore; Figure 18: Main Inflation Components: Thailand; Figure 19: Time-varying Coefficient Estimates: Thailand; Figure 20: Contributions resulting from time-varying parameters: Thailand; Tables; Table 1: Monetary Policy Frameworks and Transparency in ASEAN-5 Countries.