IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Why Did Large-scale Deflation Occur? What Did It Bring About?: From Hong Kong's Experiences in the First Half of the 2000s

  • Shin-ichi Fukuda

    (Professor, Graduate School of Economics, the University of Tokyo)

  • Junji Yamada

    (Assistant Professor, Faculty of Economics, the University of Toyama)

This article examines why large-scale deflation occurred in Hong Kong in the first half of the 2000s and what costs it brought about. During the period, the consumer price index fell at an annual rate of nearly 4% (over 5% in terms of GDP deflator). The substantial fall is unparalleled in the history of the postwar world economy, and provides a valuable case study to identify causes and consequences of deflation. One interesting characteristic is that, despite the substantial fall in prices, economic growth rate was high for several years. Hong Kong's experiences illustrate that deflation does not always coincide with recession, and that economic recovery can be achieved even during a prolonged deflationary period. Our empirical analysis shows that external shocks, not domestic shocks, were a major factor that caused the substantial fall in domestic prices in Hong Kong. In particular, falls in export and import prices due to the strong Hong Kong dollar had a major effect on the fall in domestic prices. The deflation kept real wages at a high level, thus raising the unemployment rate. However, unlike Japan, Hong Kong experienced practically no debt deflation, so that there were only minor turbulences in its financial market. As a result, Hong Kong achieved relatively high economic growth despite the substantial deflation. Despite its China's special administrative region, the Hong Kong's experiences have important lessons for the other economies on what are causes and consequences of large-scale deflation.

If 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.

File URL: http://www.mof.go.jp/english/pri/publication/pp_review/ppr015/ppr015e.pdf
Download Restriction: no

Article provided by Policy Research Institute, Ministry of Finance Japan in its journal Public Policy Review.

Volume (Year): 8 (2012)
Issue (Month): 1 (June)
Pages: 93-122

as
in new window

Handle: RePEc:mof:journl:ppr015e
Contact details of provider: Web page: http://www.mof.go.jp/pri/Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Mehrotra, Aaron, 2005. "Exchange and interest rate channels during a deflationary era - Evidence from Japan, Hong Kong and China," BOFIT Discussion Papers 17/2005, Bank of Finland, Institute for Economies in Transition.
  2. Hans Genberg & LaurentL. Pauwels, 2005. "Wage-Price Dynamics And Deflation In Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 10(2), pages 191-216, 06.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mof:journl:ppr015e. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Policy Research Institute)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.