Inflation co-movement in the Asean countries

Abstract

We conduct frequency domain analyses to document some empirical regularities on international inflation co-movement in the ASEAN countries. The estimated cohesion index, a measure of co-movement in frequency domain, shows that inflation co-movement is stronger in the long run than in the short run, which has not been examined in depth in the literature using time domain analysis. There is strong evidence that inflation co-movement within the ASEAN countries is weaker than inflation co-movement within the G7 countries. We also find that the inflation in an ASEAN country, on average, fluctuates more closely with the inflation in the G7 countries than with the inflations in other neighboring ASEAN countries, implying that geographical proximity is not important in inflation synchronization. These empirical findings suggest that the inflation in advanced countries is likely to be the main source of international inflation co-movement, which is more important than regional factor in explaining the fluctuations of inflation in the ASEAN countries.