A Currency Board Model of Hong Kong

29 Pages Posted: 23 Aug 2007

See all articles by Yue Ma

Yue Ma

City University of Hong Kong (CityU) - Department of Economics & Finance

Guy Meredith

International Monetary Fund (IMF) - Research Department

Matthew S. Yiu

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR)

Date Written: January 2002

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.

Keywords: currency board, stochastic simulation, certainty equivalence, Hong Kong

JEL Classification: F31, E47, C15

Suggested Citation

Ma, Yue and Meredith, Guy and Yiu, Matthew S., A Currency Board Model of Hong Kong (January 2002). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 01/2002, Available at SSRN: https://ssrn.com/abstract=1009096 or http://dx.doi.org/10.2139/ssrn.1009096

Yue Ma (Contact Author)

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/yuema24

Guy Meredith

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Matthew S. Yiu

Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR) ( email )

55/F Two IFC
8 Finance Street, Central
Hong Kong, HK
China
+852 2878 1974 (Phone)
+852 2878 7006 (Fax)

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