A Comprehensive Re-examination of Inflation in ASEAN-5 Countries. Evidence from Dynamic Panel Data Analysis

Muthukrishnan, Kailass (2025) A Comprehensive Re-examination of Inflation in ASEAN-5 Countries. Evidence from Dynamic Panel Data Analysis. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

Using panel data from 2000 to 2023, this study analyses the macroeconomic factors that influence inflation in the ASEAN-5 nations: Indonesia, Malaysia, the Philippines, Singapore, and Thailand. It specifically investigates how inflation is impacted by the money supply (M3), unemployment, volatility in foreign currency rates, and technological advancement. The study attempts to determine the relationships over both short-run and long-run horizons among these variables by using a variety of econometric techniques, such as the Dumitrescu-Hurlin panel causality test, the Panel ARDL model, the Kao cointegration test, and panel unit root tests. The finding shows that while technical innovation has a major negative influence on inflation, emphasizing its role in lowering inflationary pressures, money supply and exchange rate volatility have considerable beneficial effects on inflation over the long term. Despite having a negative correlation with inflation, unemployment has a statistically negligible impact. About 61% of short-term deviations are adjusted annually toward long-run equilibrium, according to the error correction term (ECT). Additionally, causality analysis confirms a unidirectional causal relationship from inflation to money supply, trade openness, and technological innovation, while a bi-directional causality exists between money supply and unemployment. Overall, this research provides key insights into the inflationary dynamics of ASEAN-5, emphasizing the need for coordinated monetary policies, trade liberalization strategies, and investment in innovation to ensure price stability and sustainable economic growth across the region.