Wage-Price Dynamics, the Labour Market and Deflation in Hong Kong

Since 1998 Hong Kong has experienced over 16 quarters of deflation. Some asset prices such as factory and office space prices started to fall in early 1990s, a long time before the Asian crisis. The number of firms and businesses that have moved out of Hong Kong are not readily available, but it is quite plausible that firms and businesses relocated to the Mainland because they expected future marginal costs to fall in response to Hong Kong¡¦s handover to China in 1997. We estimate a Phillips curve specification, where changes in the price level are a function of expected inflation and the marginal cost. This model outperforms (in-and-out-of-sample) the traditional Phillips curve specification and other models of wage-price dynamics. Because the marginal cost is basically unit labour cost, the model suggests that wage and productivity dynamics play an important role in explaining price dynamics.Deflation, Phillips curve, Wages, Real Marginal Cost, Mark-up

A Service of zbw A Nonparametric Approach to Evaluating Inflation- Targeting Regimes A Nonparametric Approach to Evaluating Inflation-Targeting Regimes A Nonparametric Approach to Evaluating Inflation Targeting Regimes Comments are Welcome A Nonparametric

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We use a variety of nonparametric test statistics to evaluate the inflationtargeting regimes of Australia, Canada, New Zealand, Sweden and the UK. We argue that a sensible approach of evaluation must rely on a variety of methods, among them nonparametric econometric methods, for robustness and completeness. Our evaluation strategy is based on examining three possible policy implications of inflation targeting: First, a welfare implication; second, a real variability implication. The welfare implication involves evaluating consumption and leisure per person by testing whether their distributions of levels and the growth rates remained unchanged under inflation targeting. Then we introduce nonparametric univariate and multivariate statistical methods to test whether the conditional variance of a variety of real variables, such as the real exchange rate depreciation rate, real GDP per capita growth rate in addition to private consumption per capita and leisure per capita growth rates, remained unchanged under inflation targeting, decreased or increased significantly. Third, we examine whether inflationtargeting policies eliminated boom-bust housing cycles. For control we also examine the US data during periods of high and low inflation before and after 1984. Terms of use: Documents in JEL Classification C02, C12, C14,E3