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Inflation and Its Uncertainty: Evidence from Indonesia and the Philippines

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  • Haryo Kuncoro

Abstract

This article investigates the relationship between inflation and its uncertainty under the inflation-targeting regime in Indonesia and the Philippines over 2005(7)–2021(12). The Kernel density function and entropy index applications reveal that the price level in both countries is heterogeneous. The non-linear quantile regression estimation shows that inflation affects inflation uncertainty positively. Inflation more likely induces its uncertainty in higher quantiles. The effect exhibits an inconsistent linearity property. While the symmetric behavior holds in the Philippines, inflation in the case of Indonesia affects the inflation uncertainty differently, not only inter-quantiles but also intra-quantiles. Given that Indonesia and the Philippines have low inflation rates relative to other emerging markets, our findings suggest that announcing higher inflation targets may be costly to provoke higher inflation uncertainty. Accordingly, controlling inflation uncertainty in the inflation-targeting regime can be achieved if monetary policy is credible and independent. JEL Classification C14, C21, D08, E31, O23

Suggested Citation

  • Haryo Kuncoro, 2024. "Inflation and Its Uncertainty: Evidence from Indonesia and the Philippines," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 16(2), pages 231-247, May.
  • Handle: RePEc:sae:emeeco:v:16:y:2024:i:2:p:231-247
    DOI: 10.1177/09749101221149873
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; inflation uncertainty; Kernel distribution; entropy index; quantile regression;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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