Hong Kong's New Keynesian Phillips Curve: Sticky information or sticky price?

Tsz H. Hung and Yum K. Kwan

Pacific Economic Review, 2022, vol. 27, issue 1, 42-55

Abstract: This paper studies the validity of Hong Kongʼs New Keynesian Phillips Curve, focusing on the sticky price and the sticky information model. Drawing on Hong Kongʼs quarterly data 1982Q1–2017Q2, we find that (a) both models can account for the cyclical movements of the observed inflation dynamics, but the sticky information model appears to be better in predictive performance; (b) the Hong Kong economy is characterized by substantial price rigidity but very low information rigidity; and (c) the sticky‐information model highlights the importance of past expectations in explaining the inflation dynamics in Hong Kong.

Date: 2022
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