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WAGE–PRICE DYNAMICS AND DEFLATION IN HONG KONG
Author(s) -
Genberg Hans,
Pauwels Laurent L.
Publication year - 2005
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2005.00268.x
Subject(s) - deflation , economics , wage , unemployment , empirical evidence , monetary economics , macroeconomics , keynesian economics , labour economics , monetary policy , philosophy , epistemology
. We provide empirical evidence on the dynamics of prices and wages in Hong Kong. The results suggest that the post‐1997 deflation 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. We find that the decline in local nominal prices owes much to declining prices of imported intermediate goods. The negative output gap and increase in unemployment during the deflation period also have their origin in foreign shocks, but the domestic wage adjustment process is an important contributing factor.