Private Sector Activity in Hong Kong SAR and the Fed: Transmission Effects Through the Currency Board

16 Pages Posted: 28 Mar 2016

See all articles by Joong Shik Kang

Joong Shik Kang

International Monetary Fund (IMF)

Date Written: February 2016

Abstract

As the U.S. Fed begins to increase the Federal Funds rate, interest rates in Hong Kong SAR will rise in tandem under the Currency Board system. While domestic economic activity in Hong Kong SAR remained resilient in previous rate hike cycles, there is a concern that the impact of higher interest rates would be larger this time due to historic high levels of leverage in both household and corporate sectors. However, macroprudential measures have contained the debt service burden among new borrowers and leverage quality of corporate sector is healthier than its peers in the region. Empirical estimations of aggregate consumption and corporate investment show that private domestic demand is likely to remain robust with the anticipated gradual increase in interest rates over the next few years and taking into account the buffers in the system.

Keywords: WAEMULiftoff, Consumption, Investment, Leverage: Interest Rates, interest, interest rates, debt, currency, Globalization: Macroeconomic Impacts,

JEL Classification: E21, E22, F62

Suggested Citation

Kang, Joong Shik, Private Sector Activity in Hong Kong SAR and the Fed: Transmission Effects Through the Currency Board (February 2016). IMF Working Paper No. 16/35, Available at SSRN: https://ssrn.com/abstract=2754940

Joong Shik Kang (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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