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Wage-Price Dynamics and Deflation in Hong Kong

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Abstract

This paper provides empirical evidence on the dynamics of prices and wages in Hong Kong. The results imply that the deflation in Hong Kong since 1997 can be understood using a conventional macroeconomic framework wherein foreign influences constitute the basic underlying shocks, and adjustment processes in domestic wages and prices determine the details of the transmission mechanism. Our results indicate that the decline in local nominal prices owes much to declining prices of imported intermediate goods. The negative output gap and the increase in unemployment experienced during the deflation period also have their origin in foreign shocks, but the domestic wage adjustment process constitutes an important contributing factor.

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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 06-2004.

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Length: 31
Date of creation: Aug 2004
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 191-216
Handle: RePEc:gii:giihei:heiwp06-2004

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Keywords: Deflation; wage-price dynamics; Hong Kong data.;

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Cited by:
  1. Gregor W. Smith, 2006. "The spectre of deflation: a review of empirical evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 39(4), pages 1041-1072, November.
  2. Li-gang Liu & Andrew Tsang, 2008. "Exchange Rate Pass-Through to Domestic Inflation in Hong Kong," Working Papers 0802, Hong Kong Monetary Authority.
  3. Nicolas Canry & Julien Fouquau & Sébastien Lechevalier, 2007. "Price Dynamics in Japan (1981-2001): A StructuralAnalysis of Mechanisms in the Goods and LaborMarkets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00140624, HAL.
  4. Hans Genberg, 2005. "External shocks, transmission mechanisms and deflation in Asia," BIS Working Papers 187, Bank for International Settlements.
  5. Shin-ichi Fukuda & Junji Yamada, 2012. "Why Did Large-scale Deflation Occur? What Did It Bring About?: From Hong Kong's Experiences in the First Half of the 2000s," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(1), pages 93-122, June.
  6. 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.
  7. repec:hal:journl:halshs-00140624 is not listed on IDEAS
  8. James Yetman, 2009. "Hong Kong Consumer Prices are Flexible," Working Papers 052009, Hong Kong Institute for Monetary Research.
  9. Pierre L. Siklos & Diana N. Weymark, 2007. "Is Sterilized Intervention Effective? New International Evidence," Working Papers 142007, Hong Kong Institute for Monetary Research.

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