## 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

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### 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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_Source: https://www.imf.org/en/publications/wp/issues/2019/07/11/inflation-co-movement-in-emerging-and-developing-asia-the-monsoon-effect-46999_