Macroeconomic determinants of inflation in Asian inflation targeting nations: An empirical panel data analysis

Abstract

Inflation remains a persistent concern for nations globally, prompting policymakers to adopt various monetary strategies to mitigate its adverse effects on economic stability and consumer welfare. Central banks have adopted various monetary regimes over time to tackle inflation, with inflation targeting emerging as a popular approach since the 1990s. Despite the extensive literature on the effects of inflation targeting, there exists a gap in understanding the determinants of inflation persistence, particularly in Asian nations. This study addresses this gap by identifying the factors contributing to inflation persistence in selected Asian countries that have adopted inflation targeting. Employing a panel ARDL model and pooled mean group estimator, this research examines the short and long-term determinants of inflation in ten selected inflation-targeting Asian countries from 1995 to 2022. The study results reveal significant influences of various economic variables on inflation rates. In the long run, GDP Growth Rate (gdp growth), Imports (imp), Broad money growth (ms), Foreign direct investment, net inflows (fdi), and Global crude oil prices (cop) show statistically significant impacts on inflation.In the short run, the Monetary sector credit to private sector (mcp), Exports (exp), Foreign direct investment, net inflows (fdi) and Real effective exchange rate index (reer) exhibit significant influences on inflation. This study contributes valuable insights for policymakers, aiding in the formulation and execution of effective strategies to evaluate the effects of inflation targeting on Asian countries. By understanding the factors driving inflation, policymakers can better address economic challenges and ensure price stability in the region.