Hong Kong's Growth Synchronisation with China and the U.S.: A Trend and Cycle Analysis

HKIMR Working Paper No.15/2014

29 Pages Posted: 8 Jul 2014 Last revised: 7 Oct 2014

See all articles by Dong He

Dong He

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

Wei Liao

International Monetary Fund

Tommy T. Wu

Hong Kong Monetary Authority

Date Written: July 7, 2014

Abstract

This paper investigates the synchronisation of Hong Kong's economic growth with mainland China and the US. We identify trends of economic growth based on the permanent income hypothesis. Specifically, we first confirm whether real consumption in Hong Kong and mainland China satisfies the permanent income hypothesis, at least in a weak form. We then identify the permanent and transitory components of income of each economy using a simple state-space model. We use structural vector autoregression models to analyse how permanent and transitory shocks originating from mainland China and the US affect the Hong Kong economy, and how such influences evolve over time. Our main findings suggest that transitory shocks from the US remain a major driving force behind Hong Kong’s business cycle fluctuations. On the other hand, permanent shocks from mainland China have a larger impact on Hong Kong’s trend growth.

Keywords: Business Cycle Synchronisation, Permanent Income Hypothesis, Stochastic Trend, Structural Vector Autoregression

JEL Classification: E21, F44

Suggested Citation

He, Dong and Liao, Wei and Wu, Tommy T., Hong Kong's Growth Synchronisation with China and the U.S.: A Trend and Cycle Analysis (July 7, 2014). HKIMR Working Paper No.15/2014. Available at SSRN: https://ssrn.com/abstract=2463069 or http://dx.doi.org/10.2139/ssrn.2463069

Dong He

Hong Kong Monetary Authority

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Hong Kong Institute for Monetary Research (HKIMR)

3 Garden Road, 8th Floor
Hong Kong
China

Wei Liao

International Monetary Fund ( email )

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

Tommy T. Wu (Contact Author)

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre
8 Finance Street, Central
Hong Kong
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
32
Abstract Views
336
PlumX Metrics