Inflation problem of Hongkong Essay Example | Topics and Well Written Essays - 5000 words

Inflation problem of Hongkong - Essay Example In cases where the market integration is absence, it implicates the economic welfare of the country. Therefore, the country has to address the problem urgently, to avoid facing the partial price transmission that might cause deficit in the balance of payment (Hansen, 1990, p. 16). The failures, which are imminent for not co-integrating the business operations results from inadequate information to the business players. It is necessary for the country a better communication and transport infrastructure, to ease the dissemination of business information, and transport the final products to the market respectively (Hansen, 1990, p. 18). This would ensure the success of the business. Testing Framework for Price Transmission Price transmission encompasses the relationships of the market dynamics, integration that arise from the trade discontinuities and policies governing trade operations and the pressure that the dominant players exert in the market (Hansen, 1990, p. 17). In testing the price transmission components, the following techniques are used; causality, co-integration, symmetry, and error correction mechanisms (Hansen, 1990, p. 18). Notably, each technique provides an insight on the specific price transmission component.... 16). The failures, which are imminent for not co-integrating the business operations results from inadequate information to the business players. It is necessary for the country a better communication and transport infrastructure, to ease the dissemination of business information, and transport the final products to the market respectively (Hansen, 1990, p. 18). This would ensure the success of the business. Testing Framework for Price Transmission Price transmission encompasses the relationships of the market dynamics, integration that arise from the trade discontinuities and policies governing trade operations and the pressure that the dominant players exert in the market (Hansen, 1990, p. 17). In testing the price transmission components, the following techniques are used; causality, co-integration, symmetry, and error correction mechanisms (Hansen, 1990, p. 18). Notably, each technique provides an insight on the specific price transmission component. Co-integration In markets tha t are spatially separated, one notes that the chain of supply differs from one geographic region to the other. p1t & p2t follow similar order in integration. Therefore, the prices of goods are co-integrated when, p1t – b p2t = ut (3) is I (0) (Hansen, 1990, p. 19). Where, b is co-integrating vector or (scalar when there are two variables). (3) is co-integration regression. Notably, in linear combination, without the stochastic trend, the p1t & p2t values are said to be integrated, implying that in future, the commodity prices would be closely together. Precisely, this explains the market integration concept, where, the prices that are drifted apart are subsequently drawn together, as a result as some forces within the