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Changes in the Determinants of Inflation in Australia

Author

Listed:
  • Jacqueline Dwyer

    (Reserve Bank of Australia)

  • Kenneth Leong

    (Reserve Bank of Australia)

Abstract

In the past decade, inflation in Australia and most other industrialised countries has been extremely well behaved. An important question is whether this reflects a series of favourable shocks to prices or a more fundamental change in the inflation process. In this paper, we explore developments in each of the key explanators of inflation. We find that some of the determinants of inflation in Australia have exhibited unusual or structural change in recent years. Using a mark-up model of inflation, we attempt to identify whether there has been a change in the relationship between inflation and its determinants. We find some tentative evidence of change. Although this change is not statistically significant, it may be economically significant. It leaves open the possibility that some forces may be emerging that could help reduce the variability of inflation in response to shocks.

Suggested Citation

  • Jacqueline Dwyer & Kenneth Leong, 2001. "Changes in the Determinants of Inflation in Australia," RBA Research Discussion Papers rdp2001-02, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2001-02
    as

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    References listed on IDEAS

    as
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    5. Jacqueline Dwyer & Ricky Lam, 1994. "Explaining Import Price Inflation: A Recent History of Second Stage Pass-through," RBA Research Discussion Papers rdp9407, Reserve Bank of Australia.
    6. Menon, Jayant, 1995. "Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. David Norman & Anthony Richards, 2012. "The Forecasting Performance of Single Equation Models of Inflation," The Economic Record, The Economic Society of Australia, vol. 88(280), pages 64-78, March.
    2. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
    3. Dubravko Mihaljek & Marc Klau, 2008. "Exchange rate pass-through in emerging market economies: what has changed and why?," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 103-130, Bank for International Settlements.
    4. Mardi Dungey, 2002. "International Shocks and the Role of Domestic Policy in Australia," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(2), pages 143-163, June.
    5. Ricardo J Caballero & Kevin Cowan & Jonathan Kearns, 2004. "Fear of Sudden Stops: Lessons from Australia and Chile," RBA Research Discussion Papers rdp2004-03, Reserve Bank of Australia.
    6. Mr. Siang Meng Tan & Ms. Joey Chew & Mr. Sam Ouliaris, 2011. "Exchange Rate Pass-Through Over the Business Cycle in Singapore," IMF Working Papers 2011/141, International Monetary Fund.
    7. Mouyad Al Samara & Cindy Moons & Jan Hove, 2013. "Exchange rate pass-through: evidence from the Syrian economy," International Economics and Economic Policy, Springer, vol. 10(3), pages 405-425, September.
    8. Syed Kanwar Abbas & Prasad Sankar Bhattacharya & Debdulal Mallick & Pasquale Sgro, 2016. "The New Keynesian Phillips Curve in a Small Open Economy: Empirical Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 92(298), pages 409-434, September.
    9. Guy Debelle & Jenny Wilkinson, 2002. "Inflation Targeting and the Inflation Process: Some Lessons from an Open Economy," RBA Research Discussion Papers rdp2002-01, Reserve Bank of Australia.
    10. Mark Crosby, 2005. "Pricing to Market and a Volatile AUD," Australian Journal of Management, Australian School of Business, vol. 30(1), pages 145-158, June.
    11. Ricardo Caballero & Kevin Cowan & Jonathan Kearns, 2005. "Fear of Sudden Stops: Lessons From Australia and Chile," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(4), pages 313-354.
    12. Ricardo J. Caballero & Kevin Cowan & Jonathan Kearns, 2005. "El temor a las paradas repentinas: enseñanzas de Australia y Chile," Research Department Publications 4364, Inter-American Development Bank, Research Department.
    13. Gunnar Bårdsen & Stan Hurn & Zoë Mchugh, 2007. "Modelling Wages and Prices in Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 143-158, June.
    14. Leung Andrew P., 2015. "The Fisher Hypothesis and Its Implications for Defined Benefits," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 9(1), pages 107-124, January.
    15. Tim Hampton, 2001. "How much do import price shocks matter for consumer prices?," Reserve Bank of New Zealand Discussion Paper Series DP2001/06, Reserve Bank of New Zealand.
    16. Sweidan Osama D., 2013. "Exchange Rate Pass-Through into Import Prices in Jordan," Global Economy Journal, De Gruyter, vol. 13(1), pages 109-128, January.
    17. Geoff Weir, 2018. "Wage Growth Puzzles and Technology," RBA Research Discussion Papers rdp2018-10, Reserve Bank of Australia.

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    More about this item

    Keywords

    determinants of inflation; import prices; productivity; wages;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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