Inflation Co-Movement in Emerging and Developing Asia: The Monsoon Effect
IMF Working Papers, July 11, 2019
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Bibliographic details
- Authors: Patrick Blagrave
- Published: July 11, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498321761.001
Summary and main finding
- Co-movement (synchronicity) in inflation rates among a set of 13 emerging and developing countries in Asia is shown to be strongest for the food component, partly due to common rainfall shocks — a result termed the “monsoon effect.”
- Economies with higher trade integration and co-movement in nominal effective exchange rates also experience greater food-inflation co-movement.
- Cross-country co-movement in core inflation is weak and the aforementioned determinants have little explanatory power, suggesting a prominent role for idiosyncratic domestic factors in driving core inflation.
- In the context of the literature on the globalization of inflation, these results suggest that common weather patterns are partly responsible for any role played by a so-called “global factor” among inflation rates in emerging and developing economies in Asia.
Empirical determinants and dynamics
- Primary drivers identified for food-inflation co-movement:
- Common rainfall shocks (the “monsoon effect”).
- Higher trade integration.
- Co-movement in nominal effective exchange rates.
- Core inflation:
- Exhibits weak cross-country co-movement.
- Shows limited explanatory power from trade integration, nominal effective exchange rate co-movement, and common rainfall shocks.
- Implies stronger influence of idiosyncratic domestic factors on core inflation dynamics.
Implications for analysis and policy
- Interpretation of a “global factor” in emerging and developing Asia’s inflation should account for common weather patterns as a channel of synchronization, especially for food inflation.
- Policy focus:
- Food-price volatility across countries may reflect common climatic risks (rainfall shocks), suggesting scope for regional cooperation on weather-related risk management and food market stability.
- Domestic policies geared to core inflation management should prioritize country-specific factors given weak cross-country synchronization in core inflation.
- Research and monitoring:
- Distinguish food and core inflation components when assessing cross-country inflation co-movement and spillovers.
- Monitor nominal effective exchange rate co-movement and trade integration as predictors of food-inflation synchronicity.
Key statistics and publication metadata
- Countries analyzed: 13 emerging and developing countries in Asia
- Publication date: July 11, 2019
- Author: Patrick Blagrave
- Pages: 28
- Volume: 2019
- Issue: 147
- Series: Working Paper No. 2019/147
- DOI: https://doi.org/10.5089/9781498321761.001
- Stock No: WPIEA2019147
- ISBN: 9781498321761
- ISSN: 1018-5941
- Subjects: Economic integration, Food prices, Foreign exchange, Inflation, Nominal effective exchange rate, Prices, Trade integration
- Keywords: Asia and Pacific, co-movement, copyright page, Core CPI Inflation, core CPI Inflation co-movement, core inflation process, dependent variable, food inflation, food Inflation co-movement, food Inflation co-movement regression, Food prices, Global, headline inflation inflation rate, Inflation, inflation outcome, monsoon effect, movement regression, moving average, Nominal effective exchange rate, robustness check, spillovers, Trade integration, weather, WP
IMF Working Paper: "Inflation Co-Movement in Emerging and Developing Asia: The Monsoon Effect" by Patrick Blagrave, July 11, 2019.
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