How much price stickiness in Hong Kong? —Evidence from small open economy DSGE and indirect inference

Zhao, Zhiqi, Kuang, Kefeng, Tang, Yunjie, Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947 and Zhu, Zheyi 2024. How much price stickiness in Hong Kong? —Evidence from small open economy DSGE and indirect inference. Open Economies Review 10.1007/s11079-024-09783-4 Item availability restricted.

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Abstract

Hong Kong is seen as a flexible economy for its free movement of capital and perfect competitive business environment, but most researches either take this background as a default to set the flexible price, or take priors in other economies as a starting point of estimation and they are not tested against data. This paper studies the price stickiness in Hong Kong through the small open economy DSGE model with currency board features. Three models, the flexible price, the sticky price and sticky price with indexation, are estimated and tested by Indirect Inference. We find that sticky price model and sticky price with indexation model match the data behaviour in Hong Kong better, but the testing power for sticky price with indexation is weaker. Although we believe there is sticky price in Hong Kong, the estimation indicates a low level of stickiness. Sticky price and Phillips curve generate additional transmission channel so that prices’ response to foreign monetary policy are stronger, but this mechanism is not observed in other shocks.

Item Type:	Article
Date Type:	Published Online
Status:	In Press
Schools:	Business (Including Economics)
Publisher:	Springer
ISSN:	0923-7992
Date of First Compliant Deposit:	7 October 2024
Date of Acceptance:	8 August 2024
Last Modified:	07 Nov 2024 21:45
URI:	https://orca.cardiff.ac.uk/id/eprint/172092

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