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An Open Economy New Keynesian Phillips Curve: Evidence from Hong Kong

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Abstract

This paper extends the new hybrid Keynesian Phillips curve (NKPC) to the open economy context. We hypothesise 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.

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Bibliographic Info

Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 03-2003.

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Length: 23
Date of creation: Nov 2003
Date of revision:
Publication status: Published in Pacific Economic Review, Special Issue on Deflation and Macroeconomic Issues in Hong Kong, Volume 10, 2, 2005, pages 261-277
Handle: RePEc:gii:giihei:heiwp03-2003

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Keywords: New Keynesian Phillips curve; inflation dynamics; micro-foundation; open economy macroeconomics; GMM estimation; Hong Kong data.;

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  1. Jordi Gali & Tommaso Monacelli, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," NBER Working Papers 8905, National Bureau of Economic Research, Inc.
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  6. repec:nbr:nberre:0126 is not listed on IDEAS
  7. 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.
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Citations

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Cited by:
  1. Funke, Michael & Paetz, Michael & Pytlarczyk, Ernest, 2011. "Stock market wealth effects in an estimated DSGE model for Hong Kong," Economic Modelling, Elsevier, vol. 28(1), pages 316-334.
  2. Kai Liu, 2014. "Public Finances, Business Cycles and Structural Fiscal Balances," Cambridge Working Papers in Economics 1411, Faculty of Economics, University of Cambridge.
  3. 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.
  4. Vararat Khemangkorn & Roong Poshyananda Mallikamas & Pranee Sutthasri, 2008. "Inflation Dynamics and Implications on Monetary Policy," Working Papers 2008-02, Economic Research Department, Bank of Thailand.
  5. Borek Vasicek, 2009. "Inflation dynamics and the New Keynesian Phillips curve in EU-4," William Davidson Institute Working Papers Series wp971, William Davidson Institute at the University of Michigan.
  6. Pami Dua & Upasna Gaur, 2010. "Determination of inflation in an open economy Phillips curve framework: the case of developed and developing Asian countries," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 3(1), pages 33-51.
  7. Agenor, Pierre-Richard & Bayraktar, Nihal, 2003. "Contracting models of the Phillips curve - empirical estimates for Middle-income countries," Policy Research Working Paper Series 3139, The World Bank.
  8. Pym Manopimoke, 2012. "Hong Kong Inflation Dynamics: Trend and Cycle Relationships with the U.S. and China," Working Papers 232012, Hong Kong Institute for Monetary Research.
  9. Michael Cheng & Wai-Yip Alex Ho, 2009. "A Structural Investigation into the Price and Wage Dynamics in Hong Kong," Working Papers 0920, Hong Kong Monetary Authority.
  10. Blagov , Boris & Funke, Michael, 2013. "The regime-dependent evolution of credibility: A fresh look at Hong Kong’s linked exchange rate system," BOFIT Discussion Papers 24/2013, Bank of Finland, Institute for Economies in Transition.
  11. Somayeh Mardaneh, 2012. "Inflation Dynamics in a Dutch Disease Economy," Discussion Papers in Economics 12/25, Department of Economics, University of Leicester.

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