Wage-Price Dynamics, the Labour Market and Deflation in Hong Kong
AbstractSince 1998 Hong Kong has experienced over 16 quarters of deflation. Some asset prices such as factory and office space prices started to fall in early 1990s, a long time before the Asian crisis. The number of firms and businesses that have moved out of Hong Kong are not readily available, but it is quite plausible that firms and businesses relocated to the Mainland because they expected future marginal costs to fall in response to Hong Kong¡¦s handover to China in 1997. We estimate a Phillips curve specification, where changes in the price level are a function of expected inflation and the marginal cost. This model outperforms (in-and-out-of-sample) the traditional Phillips curve specification and other models of wage-price dynamics. Because the marginal cost is basically unit labour cost, the model suggests that wage and productivity dynamics play an important role in explaining price dynamics.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 242003.
Length: 37 pages
Date of creation: Dec 2003
Date of revision:
Contact details of provider:
Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
More information through EDIRC
Deflation; Phillips curve; Wages; Real Marginal Cost; Mark-up;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
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.:
- repec:pri:indrel:722 is not listed on IDEAS
- Perron, P. & Bai, J., 1995.
"Estimating and Testing Linear Models with Multiple Structural Changes,"
Cahiers de recherche
9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
- Bennett T. McCallum, 1993.
"Unit Roots in Macroeconomic Time Series: Some Critical Issues,"
NBER Working Papers
4368, National Bureau of Economic Research, Inc.
- Bennett T. McCallum, 1993. "Unit roots in macroeconomic time series: some critical issues," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 13-44.
- Olivier Jean Blanchard & Lawrence Katz, 1999.
"Wage Dynamics: Reconciling Theory and Evidence,"
NBER Working Papers
6924, National Bureau of Economic Research, Inc.
- Julio J. Rotemberg & Michael Woodford, 1999.
"The Cyclical Behavior of Prices and Costs,"
NBER Working Papers
6909, National Bureau of Economic Research, Inc.
- David Card, 1995.
"The Wage Curve: A Review,"
Journal of Economic Literature,
American Economic Association, vol. 33(2), pages 285-299, June.
- Elliott, Graham, 1999.
"Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-83, August.
- Tom Doan, . "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Hans Genberg & Laurent Pauwels, 2003. "Inlation in Hong Kong, SAR- In Search of a Transmission Mechanism," Working Papers 012003, Hong Kong Institute for Monetary Research.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
"Efficient Tests for an Autoregressive Unit Root,"
NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
- Alastair Hall & Fernanda P. M. Peixe, 2000.
"A Consistent Method for the Selection of Relevant Instruments,"
Econometric Society World Congress 2000 Contributed Papers
0790, Econometric Society.
- Alastair Hall & Fernanda Peixe, 2003. "A Consistent Method for the Selection of Relevant Instruments," Econometric Reviews, Taylor & Francis Journals, vol. 22(3), pages 269-287.
- 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.
- Paul D. McNelis, 2009. "Structural Change and Counterfactual Inflation-Targeting in Hong Kong," Working Papers 232009, Hong Kong Institute for Monetary Research.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR).
If references are entirely missing, you can add them using this form.