Wage-Price Dynamics and Deflation in Hong Kong
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.
|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|
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