Browsing by Subject "Hong Kong"

Sort by: Order: Results:

Now showing items 1-11 of 11
  • Funke, Michael; Paetz, Michael (2012)
    BOFIT Discussion Papers 11/2012
    In the wake of the 2008-2009 global financial crisis, the macroeconomic discussion has returned to the topic of proactive macroprudential policies. One proactive approach, the use of loan-to-value (LTV) policies to curb booming property markets, has long been used by Hong Kong's monetary authorities to actively manage and mitigate the potential fallout from housing price bubbles. Here, we analyse the merits of this countercyclical macroprudential policy in a New Keynesian DSGE model. We conclude that nonlinear LTV policy rules implemented in reaction to episodes of high property price inflation can limit transmission of housing price cycle effects to the real economy. Keywords: Macroprudential policy, DSGE model, loan-to-value ratio, Hong Kong. JEL classification: C63, E21, E32, E69, F41.
  • Chen, Yu-Fu; Funke, Michael; Glanemann, Nicole (2009)
    BOFIT Discussion Papers 21/2009
    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
  • Mehrotra, Aaron (Edita Prima, 2006)
    Bank of Finland studies. E 34
    This thesis consists of four essays in empirical macroeconomics. The first three essays examine the conduct of monetary policy during a disinflationary and deflationary era, with the policy interest rates close to or at the zero bound.The questions of interest include the potency of the interest rate channel, the stability of broad money demand, and the possibility to use the exchange rate channel in order to affect economic activity and the price level.We use time series econometrics techniques, mainly vector autoregressions, focusing on Japan.While we find that basic relationships between the variables appear unaltered by deflation, a further stimulative impact is difficult to implement once the zero bound is hit.This can be due to political reasons, as in the case of introducing a tax on currency in order to bring about negative interest rates, or because the needed stimulus is very big, as in the case of yen depreciation to increase the price level.The last essay focuses on the fiscal policy aspects of the European Union's most recent enlargement.We examine whether the fiscal austerity required by the Maastricht criteria and the Stability and Growth Pact would be harmful for the socio-economic development of the new Member States.Introducing an indicator for socio-economic development and utilizing instrumental variables regressions, we find that fiscal retrenchment, including a lower level of public debt, would be advantageous for development.A policy implication is to maintain the Stability and Growth Pact or an equivalent intergovernmental fiscal rule to curb public spending and debt. Keywords: deflation, disinflation, zero lower bound, broadly defined liquidity, socio-economic development, Stability and Growth Pact, EU enlargement
  • Mehrotra, Aaron (2005)
    BOFIT Discussion Papers 17/2005
    Published in Journal of Comparative Economics, March 2007, Vol. 35, No 1, pp. 188-210
    We examine the role of the exchange and interest rate channels during recent deflation episodes in Japan, Hong Kong and China.We estimate open-economy structural vector autoregressive (SVAR) models for the three economies with different monetary regimes and varying degrees of openness.In both Japan and Hong Kong, shocks to the nominal effective exchange rate have a statistically significant impact on prices, with a notably stronger effect in Hong Kong.Our results provide evidence about the role of external influences in the deflation episodes of these economies, and could also be seen to weakly support suggestions to depreciate the currency in order to escape from a liquidity trap.The importance of the interest rate channel is also found to be high in Japan and Hong Kong.In China, where interest rates have not been an important monetary policy tool, neither exchange nor interest rate shocks significantly influence price developments. Keywords: Deflation, Zero lower bound, SVAR JEL Classification: E31, F41
  • Chen, Yu-Fu; Funke, Michael; Glanemann, Nicole (2010)
    BOFIT Discussion Papers 6/2010
    Published in Studies in Nonlinear Dynamics and Econometrics, 2013; 17(4): 373-393
    This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. 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 finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band. Keywords: Currency Board Arrangement, Target Zone Model, Hong Kong JEL-Classification: C61, E42, F31, F32
  • Funke, Michael; Paetz, Michael; Pytlarczyk, Ernest (2009)
    BOFIT Discussion Papers 14/2009
    Published in Economic Modelling, Vol 28, No 1-2 (2011), pp. 316-334.
    This paper develops and estimates an open economy dynamic stochastic general equilibrium (DSGE) model of the Hong Kong economy. The model features short-run price rigidities generated by monopolistic competition and staggered reoptimisation. The model is enhanced with wealth effects due to stock price dynamics, which we believe to be important. For this reason we adopt a perpetual youth approach. Model parameters and unobserved components are estimated with a Bayesian maximum likelihood procedure, conditional on prior information concerning the values of parameters.
  • Blagov, Boris; Funke, Michael (2014)
    BOFIT Discussion Papers 15/2014
    Published in Oxford Bulletin of Economics and Statistics, Vol. 78, 2016, pp. 895-914
    ​This paper takes seriously the idea that the coefficients of a VAR and the variance of shocks may be time-varying and so employs a Markov regime-switching VAR model to describe and analyse the time-varying credibility of Hong Kong’s currency board system. The endogenously estimated discrete regime shifts are made dependent on macroeconomic fundamentals. This enables us to determine which changes in macroeconomic variables can trigger switches between the low and high credibility regimes. We carry out extensive testing to search for the most appropriate specification of the Markov regime-switching model. We find strong evidence of regime switching behaviour that portrays the timevarying nature of credibility in the historical data. Our own conditional volatility index provides anticipatory signals and amplifies the regime-switching transition probabilities. Publication keywords: Markov regime-switching VAR, exchange rate regime credibility, Hong Kong
  • Funke, Michael; Loermann, Julius; Tsang, Andrew (2017)
    BOFIT Discussion Papers 15/2017
    In line with the deepening of the derivative foreign-exchange market in Hong Kong, we recover risk-neutral probability densities for future US dollar/offshore renminbi exchange rates as implied by exchange rate option prices. The risk-neutral densities (RND) approach is shown to be useful in analyzing market sentiment and risk aversion in the renminbi market. We include a forecasting exercise that confirms market participants were able to forecast the shape of the actual densities correctly for short horizons, even if their exact location could not be determined.
  • Blagov, Boris; Funke, Michael (2013)
    BOFIT Discussion Papers 24/2013
    Published in Macroeconomic Dynamics, Vol 23, No 6 (2019), pp. 2434-2468
    An estimated Markov-switching DSGE modelling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong's linked exchange rate system. The model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse responses to macroeconomic shocks reveal substantial differences in spreads. These findings contribute to efforts at modelling exchange rate regime credibility as a non-linear process with two distinct regimes. Keywords: Markov-switching DSGE models, exchange rate regime credibility, Hong Kong. JEL-Classification: E32, F41, C51, C52
  • Cheung, Yin-Wong (2014)
    BOFIT Policy Brief 11/2014
    Recently, China has been quite aggressive in promoting the international use of its currency, the renminbi (RMB). Historical experiences suggest that an active offshore market is essential for a global currency. Indeed, anecdotal evidence affirms the role of offshore RMB markets in pushing the RMB to the world. One should not, however, overplay the contribution of offshore markets. While offshore markets offer the opportunities to experiment with the global use of the currency, the overseas acceptance of the RMB is ultimately determined by both internal and external economic forces, and geopolitical factors. With its relatively small size, the offshore RMB is not likely to pressure China and alter its financial liberalization policy. A well-organized offshore RMB market will complement China's RMB internationalization policy, but could not raise the currency's global status beyond the level justified by it economic and political attributes. JEL Codes: F33
  • Funke, Michael; Paetz, Michael (2010)
    BOFIT Discussion Papers 19/2010
    Published in Journal of Housing Economics, Volume 22, Issue 1, March 2013, Pages 62-76 as "Housing prices and the business cycle: An empirical application to Hong Kong"
    This paper develops an open-economy DSGE model with a housing-market sector and a borrowing constraint. Contrary to standard conventions, domestic households are allowed to invest in foreign housing and vice versa. Using Bayesian methods, the model is applied to data for Hong Kong. The results show that Hong Kong s housing market is quite open to foreign investment, and perhaps more significantly, that variations in the loan-to-value ratio and housing preference shocks largely explain business cycle volatility.