Last Modified

• March 21, 2019

Creator

• Cheng, Chak Hung Jack
  • Affiliation: College of Arts and Sciences, Department of Economics

Abstract

• The economic downfall experienced by Hong Kong during the Asian financial crisis is bewildering since Hong Kong did not undergo large currency devaluations as did other affected Asian economies. The purpose of this dissertation is to ascertain whether the large impact of the Asian crisis on the Hong Kong economy can be attributed to labor market frictions. In the first part of this dissertation, I develop and estimate a dynamic stochastic general equilibrium model with sticky wages based on the work by Cheng and Salemi . The chief findings of this analysis are that nominal wages in Hong Kong are very sticky and the significant rise in unemployment after the crisis can be predominantly ascribed to wage setting frictions. However, wage rigidities are not responsible for the large decline in output. The rationale behind this result is that labor compensations account for a rather small share of total production costs in Hong Kong. Hence, changes in wage costs have only a limited effect on prices and output. In the second part of this work, I estimate a standard search-matching model. I find that a standard search model cannot explain the data as well as the sticky wage model. In particular, volatility of wages implied by the search model is much higher than that in the data. Finally, in the last portion of this work, I add wage stickiness to the standard search model to further determine the role of wage rigidity in explaining the Hong Kong data. I find that incorporating wage rigidity into the search model can improve the model's ability to explain the volatility of nominal wages. Also, by conducting counterfactual experiments on the sticky wage search model, I confirm that wage rigidity significantly amplifed the impact of the Asian financial crisis on the Hong Kong economy.

Date of publication

• August 2011

DOI

• https://doi.org/10.17615/g5zk-he33

Resource type

• Dissertation

Rights statement

• In Copyright

Note

• "... in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Department of Economics."

Advisor

• Salemi, Michael K.

Language

• English

Publisher

• University of North Carolina at Chapel Hill

Place of publication

• Chapel Hill, NC

Access

• Open access

Parents:

This work has no parents.

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