Hong Kong's currency is pegged to the US dollar in a currency board arrangement. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities revamped the one-sided currency board mechanism into a symmetric two-sided system with a narrow exchange rate band. This paper reviews the characteristics of the new currency board arrangement and embeds a theoretical soft edge target zone model typifying many intermediate regimes, to explain the notable achievement of speculative peace and credibility since May 2005. JEL-Classification: C61, E42, F31, F32 Keywords: currency board arrangement, target zone model, credibility, Hong Kong

This paper discusses the impact of Estonia's 2000 income tax law using Tobin's q theory of investment.The results indicate a net increase in the capital stock of 6.1 % over the long run.

This paper considers the persistent differences in economic performance across Chinese regions. We introduce a new county- and city-level dataset that spans all of mainland China and provides a detailed view of Chinese regional growth over the period 1997-2005. Non-parametric kernel density estimation is employed to establish the cross-sectional GDP per capita distribution, and the distributional dynamics are investigated using the probability matrix technique and associated stochastic kernel estimator. A set of explanatory variables is then introduced, and several regressions are run to test for conditional ß- convergence and to pinpoint influential factors for economic growth across counties and cities. Keywords: Regional Economic Growth, China JEL-Classification: O11, R11

This paper analyses the financial distortions – growth nexus in China using a tractable general equilibrium modelling approach in which heterogeneous private and state-owned firms interact. The focal points of the model are financial frictions and reallocations of factors of production across firms. The calibrated version of the model elicits the important message that the adoption of a comprehensive financial market reform package abolishing financial distortions will lead to substantial output gains. Thus, structural policies leading to more efficient allocation of factors of production will remain a key policy challenge in China in the years to come. Publication keywords: financial distortions, financial liberalisation, general equilibrium model, China

The New Keynesian Phillips curve (NKPC) posits the dynamics of inflation as forward looking and related to marginal costs.In this paper we examine the empirical relevance of the NKPC for mainland China.The empirical results indicate that an augmented (hybrid) NKPC gives results that are consistent with the data generating process.It is in this respect that the NKPC provides useful insights into the nature of inflation dynamics in mainland China as well as useful insights for the conduct of monetary policy. Keywords: China, inflation, New Keynesian Phillips curve JEL-Classification: C22, E31

The recent increase in China’s house prices at the national level masks tremendous variation at the city level – a feature largely overlooked in the macroprudential literature. This paper considers the evolving heterogeneity in China’s house price dynamics across 70 cities and assess the main deter-minants. We gauge the heterogeneity of house price dynamics using a novel regime-switching modelling approach to estimate the time-varying patterns of China’s city-level housing price synchronization. After sorting city-level housing prices into four clusters sharing similar cyclical features, we see that each group shows increasing synchronization in the years leading up to 2015, and a decoupling pattern thereafter. We document high synchronization within each of the clusters of cities, but low synchronization among them. The empirical evidence suggests that differentials in the growth of households, income, investment and even differences in air quality explain housing price synchronization among cities.

This paper studies monetary policy transmission in China’s peer-to-peer lending market. Using spectral measures of causality, we explore the impacts of Chinese monetary policy shocks on China’s P2P market interest rates and lending amounts. The estimation results indicate significant spectral Granger causality from monetary policy surprises to P2P lending rates for borrowers, but not the reverse. Unlike the lending channel for traditional banks, monetary policy shocks do not Granger-cause the credit amount in the P2P lending market.

This paper investigates the implementation of regionally differentiated macro-prudential policies in China. To assess the relative intensity of the city-level macro-prudential policies over time, we construct a time-varying city-level macro-prudential policy intensity indicator for 70 Chinese cities from 2010-2017. The empirical evidence shows China’s macro-prudential toolbox has gradually evolved toward city-level policies tailored to granular local conditions to mitigate risks.

The recent increase in Chinese house prices has led to concerns that China is vulnerable to asset price shocks. In this paper, we apply recently developed recursive unit root tests to spot the beginning and the end of potential speculative bubbles in Chinese house price cycles. Overall, we find that except for 2009-2010 actual house prices are not significantly disconnected from fundamentals. Thus, the evidence for speculative house price bubbles in China is in general weak. Keywords: house prices, China, speculative bubbles, recursive unit root tests JEL-Classification: C15, G01, G12, R31

We present a new composite leading indicator of economic activity in mainland China, estimated using a dynamic factor model.Our leading indicator is constructed from three series: exports, a real estate climate index, and the Shanghai Stock Exchange index.These series are found to share a common, unobservable element from which our indicator can be identified.This indicator is then incorporated into out-of-sample one-step-ahead forecasts of Chinese GDP growth.Recursive out-of-sample accuracy tests indicate that the smallscale factor model approach leads to a successful representation of the sample data and provides an appropriate tool for forecasting Chinese business conditions. Keywords: Forecasting, China, Leading Indicator, Factor Model, Growth Cycles JEL-Classification: C32, C52, E32, E37