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A Structural Investigation into the Price and Wage Dynamics in Hong Kong

Author

Listed:
  • Michael Cheng

    (Research Department, Hong Kong Monetary Authority)

  • Wai-Yip Alex Ho

    (Research Department, Hong Kong Monetary Authority)

Abstract

This paper estimates the degree of wage and price flexibility of the Hong Kong economy with the use of a stylised dynamic stochastic general equilibrium (DSGE) model developed for the Hong Kong economy. It also studies the factors contributing to deflation in Hong Kong following the Asian financial crisis (i.e. during the period from 1998 to 2003) and finds that declining import prices were the main culprit. Consistent with earlier studies on the subject and anecdotal evidence, wages and prices in Hong Kong are found to be (relatively) flexible.

Suggested Citation

  • Michael Cheng & Wai-Yip Alex Ho, 2009. "A Structural Investigation into the Price and Wage Dynamics in Hong Kong," Working Papers 0920, Hong Kong Monetary Authority.
    • Handle: RePEc:hkg:wpaper:0920
    as

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    File URL: http://www.hkma.gov.hk/media/eng/publication-and-research/research/working-papers/HKMAWP09_20_full.pdf
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    References listed on IDEAS

    as
    1. Funke, Michael & Paetz, Michael & Pytlarczyk, Ernest, 2011. "Stock market wealth effects in an estimated DSGE model for Hong Kong," Economic Modelling, Elsevier, vol. 28(1), pages 316-334.
    2. V. V Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(3), pages 533-563.
    3. Hans Genberg & LaurentL. Pauwels, 2005. "An Open-Economy New Keynesian Phillips Curve: Evidence From Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 10(2), pages 261-277, June.
    4. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
    5. Cúrdia, Vasco & Finocchiaro, Daria, 2013. "Monetary regime change and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 37(4), pages 756-773.
    6. Justiniano, Alejandro & Preston, Bruce, 2010. "Can structural small open-economy models account for the influence of foreign disturbances?," Journal of International Economics, Elsevier, vol. 81(1), pages 61-74, May.
    7. Thomas Lubik & Frank Schorfheide, 2006. "A Bayesian Look at New Open Economy Macroeconomics," NBER Chapters, in: NBER Macroeconomics Annual 2005, Volume 20, pages 313-382, National Bureau of Economic Research, Inc.
    8. James Yetman, 2009. "Hong Kong Consumer Prices are Flexible," Working Papers 052009, Hong Kong Institute for Monetary Research.
    9. Frank Leung & Gaofeng Han & Kevin Chow, 2009. "Financial Services Sector as a Driver of Productivity Growth in Hong Kong," Working Papers 0914, Hong Kong Monetary Authority.
    10. repec:zbw:bofitp:2009_014 is not listed on IDEAS
    11. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
    12. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, September.
    13. Paul D. McNelis, 2009. "Structural Change and Counterfactual Inflation-Targeting in Hong Kong," Working Papers 232009, Hong Kong Institute for Monetary Research.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Blagov, Boris & Funke, Michael, 2019. "The Regime-Dependent Evolution Of Credibility: A Fresh Look At Hong Kong'S Linked Exchange Rate System," Macroeconomic Dynamics, Cambridge University Press, vol. 23(6), pages 2434-2468, September.
    2. Echeverria Garaigorta, Paulina Elisa & Iza Padilla, María Amaya, 2010. "Prices and the Real Exchange Rate in Hong Kong: 1985-2006," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    3. repec:zbw:bofitp:2013_024 is not listed on IDEAS
    4. Blagov, Boris & Funke, Michael, 2019. "The Regime-Dependent Evolution Of Credibility: A Fresh Look At Hong Kong'S Linked Exchange Rate System," Macroeconomic Dynamics, Cambridge University Press, vol. 23(6), pages 2434-2468, September.
    5. Alba, Joseph D. & Liu, Jingting & Chia, Wai-Mun & Park, Donghyun, 2020. "Foreign output shock in small open economies: A welfare evaluation of monetary policy regimes," Economic Modelling, Elsevier, vol. 86(C), pages 101-116.

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    More about this item

    Keywords

    DSGE; Bayesian Estimation; Nominal Rigidities;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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