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An Open-Economy New Keynesian Phillips Curve: Evidence From Hong Kong

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Hans Genberg
LaurentL. Pauwels

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Abstract

This paper extends the new hybrid Keynesian Phillips Curve (NKPC) to the open-economy context. We hypothesize that pricing decisions depend on both labour costs and intermediate imported input prices. The results for Hong Kong are consistent with the theory if import prices are given substantial weight in measuring marginal cost, rejecting the labour costs model. We find that forward-looking behaviour is dominant, and that price stickiness is smaller in Hong Kong than in the USA. The results are sensitive to the choice of instruments, and a model using the output gap instead of marginal cost as the forcing variable also performs well. Copyright 2005 Blackwell Publishing Ltd

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Article provided by Blackwell Publishing in its journal Pacific Economic Review.

Volume (Year): 10 (2005)
Issue (Month): 2 (06)
Pages: 261-277
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Handle: RePEc:bla:pacecr:v:10:y:2005:i:2:p:261-277

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  2. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2005. "Robustness of the estimates of the hybrid New Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1107-1118, September. [Downloadable!] (restricted)
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  3. Sbordone, A.M., 1998. "Prices and Unit Labor Costs: a New Test of Price Stickiness," Papers 653, Stockholm - International Economic Studies.
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  4. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  5. Edith Gagnon & Hashmat Khan, 2001. "New Phillips Curve with Alternative Marginal Cost Measures forCanada, the United States, and the Euro Area," Working Papers 01-25, Bank of Canada. [Downloadable!]
  6. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  7. Donald W.K. Andrews & Biao Lu, 1999. "Consistent Model and Moment Selection Criteria for GMM Estimation with Applications to Dynamic Panel Data Models," Cowles Foundation Discussion Papers 1233, Cowles Foundation, Yale University. [Downloadable!]
  8. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
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  9. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February. [Downloadable!] (restricted)
  10. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October. [Downloadable!] (restricted)
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  11. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips Curve," Finance and Economics Discussion Series 2001-30, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  12. John M. Roberts, 2001. "How well does the New Keynesian sticky-price model fit the data?," Finance and Economics Discussion Series 2001-13, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Hans Genberg & Laurent L. Pauwels, 2002. "Inflation in Hong Kong, SAR: In search of a transmission mechanism," HEI Working Papers 09-2002, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
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  14. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270. [Downloadable!] (restricted)
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  15. Ball, Laurence & Romer, David, 1990. "Real Rigidities and the Non-neutrality of Money," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 183-203, April. [Downloadable!] (restricted)
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  16. Fuhrer, Jeff & Moore, George, 1995. "Inflation Persistence," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 127-59, February. [Downloadable!] (restricted)
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  17. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  18. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July. [Downloadable!] (restricted)
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  19. Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
  20. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc. [Downloadable!]
  21. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September. [Downloadable!] (restricted)
  22. Tauchen, George, 1986. "Statistical Properties of Generalized Method-of-Moments Estimators of Structural Parameters Obtained from Financial Market Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(4), pages 397-416, October.
  23. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pami Dua & Upasna Gaur, 2009. "Determination of Inflation in an Open Economy Phillips Curve Framework-- The Case of Developed and Developing Asian Countries," Working papers 178, Centre for Development Economics, Delhi School of Economics. [Downloadable!]
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  2. Michael K. Salemi, 2007. "Long-run and Cyclic Movements in the Unemployment Rate in Hong Kong: A Dynamic, General Equilibrium Approach," Working Papers 192007, Hong Kong Institute for Monetary Research. [Downloadable!]
  3. Pierre-Richard Agénor & Nihal Bayraktar, 2008. "Contracting Models of the Phillips Curve Empirical Estimates for Middle-Income Countries," Centre for Growth and Business Cycle Research Discussion Paper Series 94, Economics, The Univeristy of Manchester. [Downloadable!]
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