Inflation dynamics in Asia: Causes, changes, and spillovers from China

► The perception that inflation dynamics in Asia are driven by supply shocks implies a limited role for monetary policy. ► The region's economic developments over the last two decades suggest that the drivers of inflation may have changed. ► We use a Global VAR to analyze inflation dynamics in Asia, incorporating trade and financial linkages among economies. ► Monetary and supply shocks have been the main drivers of inflation in Asia over the past two decades. ► The role of demand pressures has been recently increasing; and inflation spillovers from China to the region are sizable.