The Impact of Openness on Inflation Stability in ASEAN+6 Countries.

Abstract

Trade and financial openness, which are expected to improve the welfare of society, in principle does not only affect the output but also the price. This occurs because of the trade-off between economic growth and inflation. Some countries adopted Inflation Targeting Framework (ITF) policy to stabilize inflation, while others adopted exchange rate targeting or money targeting. The purpose of this study was to analyze the impact of openness, both trade and financial openness, on inflation stability in ASEAN+6 countries. By employing panel data analysis of the eleven countries in 2001-2010, this study found that trade openness worsens inflation stability, while financial openness increases inflation stability. The negative impact of trade openness is particularly accurs in ITF countries. The positive impact of financial openness occurs in a non-ITF countries, whereas the opposite accurs for the ITF countries. The positive impact of financial openness on inflation stability in developing countries is greater than the developed countries.