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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.

Suggested Citation

  • Hans Genberg & Laurent L. Pauwels, 2004. "Wage-Price Dynamics and Deflation in Hong Kong," IHEID Working Papers 06-2004, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heiwp06-2004
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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP06-2004.pdf
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    Cited by:

    1. Nicolas Canry & Julien Fouquau & Sébastien Lechevalier, 2010. "Price Dynamics In Japan (1981-2001): A Structural Analysis Of Mechanisms In The Goods And Labor Markets," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 53(3/4), pages 357-374.
    2. Hans Genberg, 2005. "External Shocks, Transmission Mechanisms and Deflation in Asia," Working Papers 062005, Hong Kong Institute for Monetary Research.
    3. Gregor W. Smith, 2006. "The spectre of deflation: a review of empirical evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(4), pages 1041-1072, November.
    4. James Yetman, 2009. "Hong Kong Consumer Prices are Flexible," Working Papers 052009, Hong Kong Institute for Monetary Research.
    5. Pierre L. Siklos & Diana N. Weymark, 2007. "Is Sterilized Intervention Effective? New International Evidence," Working Papers 142007, Hong Kong Institute for Monetary Research.
    6. Li-gang Liu & Andrew Tsang, 2008. "Exchange Rate Pass-Through to Domestic Inflation in Hong Kong," Working Papers 0802, Hong Kong Monetary Authority.
    7. 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.
    8. 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.
    9. Claudio Borio & Magdalena Erdem & Andrew Filardo & Boris Hofmann, 2015. "The costs of deflations: a historical perspective," BIS Quarterly Review, Bank for International Settlements, March.

    More about this item

    Keywords

    Deflation; wage-price dynamics; Hong Kong data.;
    All these keywords.

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