An Open Economy New Keynesian Phillips Curve: Evidence from Hong Kong

Hans Genberg and Laurent Pauwels

No 03-2003, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper extends the new hybrid Keynesian Phillips curve (NKPC) to the open economy context. We hypothesise that pricing decisions depend on both labour costs and intermediate imported input prices. The results for Hong Kong are consistent with the theory if import prices are given substantial weight in measuring marginal cost, rejecting the labour costs model. We find that forward-looking behaviour is dominant, and that price stickiness is smaller in Hong Kong than in the USA. The results are sensitive to the choice of instruments, and a model using the output gap instead of marginal cost as the forcing variable also performs well.

Keywords: New Keynesian Phillips curve; inflation dynamics; micro-foundation; open economy macroeconomics; GMM estimation; Hong Kong data. (search for similar items in EconPapers)
Pages: 23
Date: 2003-11
New Economics Papers: this item is included in nep-mac and nep-sea
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Citations: View citations in EconPapers (15)

Published in Pacific Economic Review, Special Issue on Deflation and Macroeconomic Issues in Hong Kong, Volume 10, 2, 2005, pages 261-277

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