Movement of Inflation and New Keynesian Phillips Curve in ASEAN

Adhitya Wardhono,M Abd Nasir,Ciplis Gema Qori’Ah,Yulia Indrawati

doi:10.3390/economies9010034

Adhitya Wardhono, M Abd Nasir + Show 2 more

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https://doi.org/10.3390/economies9010034

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Journal: Economies	Publication Date: Mar 10, 2021
Citations: 4	License type: CC BY 4.0

Affiliation: Universitas Jember

Abstract

The development of the theory of dynamic inflation begins by linking wage inflation and unemployment. In further developments, factor of expectation is classified into inflation model. The study used inflation data is important for ASEAN, because ASEAN is one of the strengths of the international economy. This study analyzes the dynamics of inflation in the ASEAN using framework the New-Keynesian Phillips Curve (NKPC) model. The data used is the quarterly panel data from 5 ASEAN members in the period 2005.QI–2018.QIV. The study of this dynamic inflation applies quarter to quarter inflation data, meaning that the inflation rate is the percentage change in the general price of the current quarter compared to last quarter general price divided by the last quarter. The empirical results are estimated by using the Generalized Method of Moment (GMM), both of the system and first different indicates that the pattern formation of inflation expectations are backward-looking and forward-looking. In addition, the estimated NKPC models show the backward-looking behavior is more dominant than the forward looking. Changes in inflation are not entirely influenced by expectations of inflation in each country. Changes in inflation are also influenced by the output gap, changes in money supply, and exchange rate. Based on the findings of this study, it can be concluded that the NKPC models can explain the dynamics of inflation in each country in the ASEAN region.

Highlights

The dynamic economy of ASEAN member countries with high growth of outputs requires inflation control, which is based on a good understanding of inflation
Results of the estimated new Keynesian Phillips curve (NKPC) model indicate the pattern of formation of inflation expectations is backward-looking and forward-looking
The conclusion states that the money supply in ASEAN that has an effect on regional inflation is the same as the conclusion of previous research that examined the effect of the amount of money on inflation. These results indicate that the regulation of the money supply in ASEAN can be used to control inflation and to prescribe monetary policy at the national level

Summary

Introduction

The dynamic economy of ASEAN member countries with high growth of outputs requires inflation control, which is based on a good understanding of inflation. Various studies on inflation using national data aggregation have been conducted, but only a few studies have concern about inflation and built a model of inflation based on data from a community of country (Wardhono et al 2017). The research that examines dynamic inflation using panel data of a community of country is conducted to better understand inflation. The research is important because ASEAN is a community of big countries with regional growth differences that cause variations in inflation. These variations certainly cannot be seen using aggregate data but can be seen using data of each country. The calculation of consumer price index compiled by regions of the countries shows that inflation is a phenomenon of the rise in general price level

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Conclusion