An empirical analysis of the Phillips Curve : a time series exploration of Hong Kong

This paper examines the stationarity and cointegration of inflation and unemployment variables of Hong Kong in a period prior to and after the return of Hong Kong’s sovereignty to China on July 1, 1997. The paper separately introduces two ARDL and error correlation models for the long-run and short-run dynamics relationships between inflation and unemployment variables for these two periods after an identification of cointegration. The key findings of this paper include the negative relationship observed between inflation and unemployment in Hong Kong during this time period. Moreover, prior inflation has a significantly negative effect on the current inflation level after 1997. This result might be explained by the change of potential endogenous variables such as the macro environment shocks in the coming years after 1997