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74 Table 3:

European Journal of Economics, Finance And Administrative Sciences - Issue 18 (2010)

The estimation of inflation function using the fixed effect model with weight (Cross Section Weights) and white heteroscedasticity for Asian Region.

R-squared

0.655219

Mean dependent var

Adjusted R-squared

0.609483

S.D. dependent var

S.E. of regression

0.036657

Sum squared resid

Log likelihood

289.3251

F-statistic

Durbin-Watson stat

2.007940

Prob(F-statistic)

Variable

Coefficient

Standard Error

t-Statistic

RER1?

0.015888

0.005976

2.658655

YGAP1?

0.004472

0.009526

0.469454

DPF?

-0.176465

0.128071

-1.377875

DE?

-0.008382

0.008632

-0.971068

DP1?

0.280412

0.083203

3.370223

DC?

-0.015963

0.001875

-8.515069

R-squared

0.429816

Mean dependent var

Adjusted R-squared

0.354180

S.D. dependent var

S.E. of regression

0.045067

Sum squared resid

Durbin-Watson stat

2.052433

Weighted Statistics

Unweighted Statistics

Prob. 0.0092 0.6398 0.1714 0.3339 0.0011 0.0000

0.065779 0.058659 0.131683 14.32603 0.000000

0.043779 0.056079 0.199040

From the Table 3, we learn that the inflation in Asian countries is significantly influenced by real exchange rates and the previous domestic inflation. Furthermore, we can learn from the Table 4 that inflation in the Non-Asian countries is significantly influenced by domestic and foreign inflation. The exchange rates, however, have no significant impact on inflation. This result is consistent with our previous descriptive analysis that the exchange rates have significant influence on the inflation in Asia, but not in EU and North America.

Furthermore, our analysis also shows different results concerning the impact of Asian financial crisis 1997. The crisis has significant impact on the inflation behavior in Asian countries, but it has no influences on the inflation behavior in the EU and North America. Both models, however, show that the output gap and nominal exchange rates do not play a significant role in explaining the inflation behavior in Asia as well as the EU and North America.

4. Concluding Remarks Our analysis concerning the relationships between inflation and real exchange rate in Asia (ASEAN +3) and Non-Asia (EU and North America) give two important conclusions. First, there is a strong relationship between inflation and real exchange rates in Asian countries, but there is no such relation in the EU and North America. Second, the Asian financial crisis seems to have local impact in Asian countries, but it has no significant global impact in the EU and North America.

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