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Stock market wealth effects in an estimated DSGE model for Hong Kong

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  • Funke, Michael
  • Paetz, Michael
  • Pytlarczyk, Ernest

Abstract

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 reoptimization. We devote special attention to asset prices and wealth effects, 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. The estimations identify substantial wealth effects and indicate that the nominal interest rate responds to unexpected movements in stock prices.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1-2 (January)
Pages: 316-334

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1-2:p:316-334

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: DSGE models Wealth effects Open economy Hong Kong;

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Cited by:
  1. Wieland, Volker & Cwik, Tobias & Müller, Gernot J. & Schmidt, Sebastian & Wolters, Maik Hendrik, 2012. "A new comparative approach to macroeconomic modeling and policy analysis," IMFS Working Paper Series 49, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  2. Araújo, Eurilton, 2008. "Robust Monetary Policy with the Consumption-Wealth Channel," Insper Working Papers wpe_110, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  3. Kai Liu, 2014. "Dollar Hegemony and China’s Economy," Cambridge Working Papers in Economics 1410, Faculty of Economics, University of Cambridge.
  4. Michael Cheng & Wai-Yip Alex Ho, 2009. "A Structural Investigation into the Price and Wage Dynamics in Hong Kong," Working Papers 0920, Hong Kong Monetary Authority.
  5. Funke, Michael & Paetz, Michael, 2013. "Housing prices and the business cycle: An empirical application to Hong Kong," Journal of Housing Economics, Elsevier, vol. 22(1), pages 62-76.
  6. Muhammad Ali Nasir & Alaa M. Soliman, 2014. "Aspects of Macroeconomic Policy Combinations and Their Effects on Financial Markets," Economic Issues Journal Articles, Economic Issues, vol. 19(1), pages 95-118, March.
  7. Michael, Funke & Michael, Paetz, 2010. "What Can an Open-Economy DSGE Model Tell Us about Hong Kong’s Housing Market?," BOFIT Discussion Papers 19/2010, Bank of Finland, Institute for Economies in Transition.
  8. Kai Liu, 2014. "Public Finances, Business Cycles and Structural Fiscal Balances," Cambridge Working Papers in Economics 1411, Faculty of Economics, University of Cambridge.
  9. Schmidt, Sebastian & Wieland, Volker, 2013. "The New Keynesian Approach to Dynamic General Equilibrium Modeling: Models, Methods and Macroeconomic Policy Evaluation," Handbook of Computable General Equilibrium Modeling, Elsevier.
  10. Blagov , Boris & Funke, Michael, 2013. "The regime-dependent evolution of credibility: A fresh look at Hong Kong’s linked exchange rate system," BOFIT Discussion Papers 24/2013, Bank of Finland, Institute for Economies in Transition.

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