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A Currency Board Model of Hong Kong

Author

Listed:
  • Yue Ma

    (Lingnan University)

  • Guy Meredith

    (International Monetary Fund)

  • Matthew S. Yiu

    (Hong Kong INstitute for Monetary Research)

Abstract

The need for a deeper understanding of the operation of Hong Kong's currency board arrangements was highlighted during the Asian financial crisis in 1998. A model-based approach built on hypothetical stochastic simulations would be useful for this purpose. This paper develops a new procedure of implementing stochastic simulations in a currency board model for Hong Kong. Our new procedure is useful in the context of a nonlinear model with forward-looking expectations under conditions of noncertainty-equivalence, such as the model of Hong Kong's currency board. A simple target-zone model of the exchange rate is used as an example to illustrate the difference between our new simulation procedure and existing procedures in the literature. Finally, the new procedure is applied to the currency board model to investigate the stochastic properties of endogenous variables under a wide range of shocks.

Suggested Citation

  • Yue Ma & Guy Meredith & Matthew S. Yiu, 2002. "A Currency Board Model of Hong Kong," Working Papers 012002, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:012002
    as

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    References listed on IDEAS

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    Cited by:

    1. Sun, Huayu & Ma, Yue, 2005. "Policy strategies to deal with revaluation pressures on the renminbi," China Economic Review, Elsevier, vol. 16(2), pages 103-117.
    2. Shucheng Liu & Zhijun Zhao & Yue Ma & Matthew S. Yiu & Yak-yeow Kueh & Shu-ki Tsang, 2002. "The Full Convertibility of Renminbi: Sequencing and Influence," Working Papers 092002, Hong Kong Institute for Monetary Research.
    3. Yue Ma, 2009. "External Shocks, Balance Sheet Contagion, and Speculative Attack on the Pegged Exchange Rate System," Review of Development Economics, Wiley Blackwell, vol. 13(1), pages 87-98, February.
    4. Huayu Sun & Yue Ma, 2005. "Balance of Payments Surplus and Renminbi Revaluation Pressure," Working Papers 032005, Hong Kong Institute for Monetary Research.

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    More about this item

    Keywords

    currency board; stochastic simulation; certainty equivalence; Hong Kong;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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