## Determinants of Deflation in Hong Kong SAR

_IMF Working Papers, December 1, 2003_

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## Bibliographic details
- Authors: Papa M N'Diaye
- Published: December 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451875911.001

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### Summary of analysis
- Presents a comprehensive econometric analysis of the determinants of deflation in Hong Kong SAR.
- The analysis determines the relative contributions of factors such as increased productivity, scarce money supply, and excess capacity in determining deflation.
- Main conclusion: the effects of permanent shocks have become more important in explaining deflation.
  - Examples of permanent shocks identified: productivity shocks; shocks related to changes in the money supply; price convergence with trading partners.
- Temporary shifts in aggregate demand have been perpetuated by negative wealth and balance-sheet effects in the corporate and household sectors arising from asset-price declines over the past five years.

### Key findings (explicit)
- Increased productivity is a contributing factor to deflation.
- Scarce money supply contributes to deflationary pressures.
- Excess capacity plays a role in determining deflation.
- Permanent shocks (productivity, money supply changes, price convergence with trading partners) have increased in importance as explanations for deflation.
- Temporary aggregate-demand shifts have been sustained by:
  - negative wealth effects, and
  - balance-sheet effects in corporate and household sectors,
  - these arise from asset-price declines over the past five years.

### Analytical approach
- Uses a comprehensive econometric framework to separate relative contributions of:
  - productivity changes,
  - money supply variations,
  - excess capacity,
  - demand shocks,
  - price convergence with trading partners.
- Employs terminology and methods consistent with macroeconomic and structural VAR analysis referenced in the paper's keywords.

### Topics and keywords covered
- Asset prices
- Consumer price indexes
- Deflation
- Monetary base
- Money
- Prices
- Production
- Productivity
- aggregate demand, aggregate demand demand shock, aggregate-demand perspective, Asset prices, convergence shock, cost-push shock, durable goods, price, price level, Productivity, productivity shock, Structural VAR, WP

_The views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Determinants of Deflation in Hong Kong SAR, By Papa M N'Diaye, December 1, 2003._

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/determinants-of-deflation-in-hong-kong-sar-17060_