Exchange Rate Pass-Through to Domestic Inflation in Hong Kong

Li-gang Liu and Andrew Tsang
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Li-gang Liu: Research Department, Hong Kong Monetary Authority

No 802, Working Papers from Hong Kong Monetary Authority

Abstract: This paper estimates pass-through of exchange rate changes to domestic inflation in Hong Kong in a two-step approach. We first estimate exchange rate pass-through to import prices and then from import price to domestic inflation using a Phillips-Curve model. We find that Hong Kong¡¦s exchange rate pass-through to import prices is relatively high compared to the OECD average, although Hong Kong also witnessed a decline of pass-through after 1991. With respect to exchange rate pass-through to domestic prices, we find that a 10% depreciation of the US dollar against all currencies except for the Hong Kong dollar would lead domestic prices to increase by 0.82 and 1.61 percent in the short run and medium run, respectively. These results are also broadly consistent with those obtained from a calibration exercise that estimates exchange rate pass-through to domestic prices via channels of the tradable and non-tradable goods.

Keywords: Exchange rate pass-through; Phillips Curve; Hong Kong (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2008-03
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0802

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