Deflation in Hong Kong SAR

Author/Editor:

Philip Schellekens

Publication Date:

April 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the causes of deflation in Hong Kong SAR, exploring whether it reflects a prolonged process of adjustment to cyclical shocks or whether it results from price equalization pressures arising from structural integration with mainland China. To gauge the relative importance of these factors, the paper provides both an econometric and a qualitative analysis of the price dynamics between Hong Kong SAR and Shenzhen, a neighboring city in mainland China. It finds that the role of price equalization as a source of deflation is minor. Deflation in Hong Kong SAR is best explained by successive cyclical shocks which have been amplified by balance-sheet and wealth effects.

Series:

Working Paper No. 2003/077

Subject:

Asset prices Consumer price indexes Deflation Foreign exchange Inflation Land prices Nominal effective exchange rate Prices

English

Publication Date:

April 1, 2003

ISBN/ISSN:

9781451850017/1018-5941

Stock No:

WPIEA0772003

Pages:

26

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