The primary purpose of this thesis was to investigate if the modern Phillips Curve is valid for ASEAN five (Indonesia, Malaysia, Thailand, Singapore and Philippines) countries using a time-varying approach in the form of an ARMA-GARCH model. The method enables us to investigate how the inflation volatility reacts to economic shocks and if its history can predict the conditional variance of inflation. This study also aimed to investigate whether financial liberalisation affects the conditional variance of inflation. Moreover, we introduce a new parameter into the Phillips Curve. We propose the inclusion of a globally decomposed financial spillover index to see how it affects the inflation dynamics. Examining the period between 1996-2020, using monthly data. We find weak results, and the Phillips Curve was only valid for Singapore. Our findings also suggest that the inflation volatility is highly time-varying, indicating the suitability of the ARMA-GARCH framework. Significant coefficients in the model allow forecasting the conditional variance of inflation. The results support the idea that financial liberalisation to be volatility augmenting in some countries, suggesting a negative relationship between the degree of financial integration and received spillover effects. The globally decomposed spillover indices demonstrated weak results. For further investigations, we, therefore, propose the usage of regionally decomposed spillover indices.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:liu-180929 |
| Date | January 2021 |
| Creators | Wilfer, Simon, Wikström, Philip |
| Publisher | Linköpings universitet, Nationalekonomi, Linköpings universitet, Filosofiska fakulteten |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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