۱- Introduction

۲- Literature review on co-movement of inflation

۳- Data

۴- Methodology

۵- Results and discussion

۶- Conclusion

References

Abstract

We investigate the pairwise causality of inflation rates across time and frequencies, inflation cycle synchronization and network structure of causality between five ASEAN countries: Indonesia, Malaysia, The Philippines, Singapore, and Thailand. We draw our empirical results and conclusions by implementing dynamic conditional correlations (DCCs), a wavelet measure of cohesion for inflation cycle evolution assessment, and the spillover network index model of Diebold and Yilmaz [1,2]. We find evidence of time-dependent variation in the strength of co-movement between inflation cycles across countries. Positive network causality between inflation cycles and inflation integration across the ASEAN countries are identified. The lead–lag properties of economic indicators are observed to depend on the cycle’s periodicity. The inflation synchronization is particularly pronounced in Thailand.

Introduction

Global macroeconomic developments have mainly focused on business cycle formation rather than inflation cycle formation, probably due to inflation cycle formation being easily linked with economic activity and growth [3–۸]. However, given the intrinsic relationship of dependence and causality between interest rates, inflation cycles, and business cycles [9–۱۵], the focus on macroeconomic developments has gradually shifted towards the analysis of cyclicality in macroeconomic fundamentals. Inflation cycles, in particular, due to the role inflation plays in business cycle formation and development and in causing its fluctuations, with decreasing and increasing business cycle trends varying according to investor response to market innovations, are largely perceived as opportunities for economic growth and as sources of economic risk, simultaneously. It is this complexity of inflation cycles, which underlies interwoven dynamic relationships between global, macro, micro and financial variables in the short- mid- and long runs, and a higher integration of international and regional economies via trade linkages and trade competition, what continues to draw the attention of policy makers, the private sector and the academia. Accordingly, relevant stakeholders are beginning to understand the economic and trade diversification opportunities as well as the risks behind high-long and low-short inflation cycle interdependence, in relation to regional or international trading partners. In addition, interest rate determination is now seen from the perspective of inflation cycles that could be positively or negatively correlated with inflation cycles of substantial trading partners, and it is in this context where the subject of inflation cycle synchronization becomes relevant for macroeconomic decision-making and for determining regional trading agreements [16].