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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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    Cited by:

    1. Mehrotra, Aaron N., 2007. "Exchange and interest rate channels during a deflationary era--Evidence from Japan, Hong Kong and China," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 188-210, March.
    2. 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.
    3. Li-gang Liu & Andrew Tsang, 2008. "Exchange Rate Pass-Through to Domestic Inflation in Hong Kong," Working Papers 0802, Hong Kong Monetary Authority.
    4. repec:hal:journl:halshs-00140624 is not listed on IDEAS
    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. Hans Genberg, 2005. "External shocks, transmission mechanisms and deflation in Asia," BIS Working Papers 187, Bank for International Settlements.
    7. 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.
    8. James Yetman, 2009. "Hong Kong Consumer Prices are Flexible," Working Papers 052009, Hong Kong Institute for Monetary Research.
    9. 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.
    10. 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.
    11. Claudio Borio & Magdalena Erdem & Andrew Filardo & Boris Hofmann, 2015. "The costs of deflations: a historical perspective," BIS Quarterly Review, Bank for International Settlements, March.
    12. 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.

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    Keywords

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

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