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Do the uncertainty-induced capital outflows matter in currency crisis? Evidence from the Hong Kong speculative attacks

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  • Kai Tim Wong, Douglas
  • Wong, Anson

Abstract

Recent political issues coupled with a rapidly deteriorating economic condition in Hong Kong trigger significant capital outflows. These events have in turn raised concerns on the viability of maintaining the peg as well as the possibility of another looming currency crisis. In this paper, we utilize the time-varying parameter VAR model with stochastic volatility to examine the impact of uncertainty on capital flows. Our findings strongly confirm that the effect of uncertainty shock on capital flows is slight while the speculative shock plays a vital dominant role on capital movement resulting in a currency crisis.

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  • Kai Tim Wong, Douglas & Wong, Anson, 2021. "Do the uncertainty-induced capital outflows matter in currency crisis? Evidence from the Hong Kong speculative attacks," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s154461231931390x
    DOI: 10.1016/j.frl.2020.101643
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    References listed on IDEAS

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    1. Gerlach, Stefan, 2005. "Monetary operations by Hong Kong's Currency Board," Journal of Asian Economics, Elsevier, vol. 15(6), pages 1119-1135, January.
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    4. Goodhart, Charles & Dai, Lu, 2003. "Intervention to Save Hong Kong: The Authorities' Counter-Speculation in Financial Markets," OUP Catalogue, Oxford University Press, number 9780199261109, Decembrie.
    5. Forbes, Kristin J. & Warnock, Francis E., 2012. "Capital flow waves: Surges, stops, flight, and retrenchment," Journal of International Economics, Elsevier, vol. 88(2), pages 235-251.
    6. Mr. Fabio Comelli, 2015. "Estimation and out-of-sample Prediction of Sudden Stops: Do Regions of Emerging Markets Behave Differently from Each Other?," IMF Working Papers 2015/138, International Monetary Fund.
    7. Wissam Harake & Ellen E. Meade, 2014. "Hong Kong's Currency Crisis: A Test of the 1990s ‘Washington Consensus’ View," International Finance, Wiley Blackwell, vol. 17(3), pages 273-296, December.
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    9. Ramkishen S. Rajan & Reza Siregar, 2002. "Choice of Exchange Rate Regime: Currency Board (Hong Kong) or Monitoring Band (Singapore)?," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 538-556, December.
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    Cited by:

    1. Guo, Dong & Zhou, Peng, 2021. "The rise of a new anchor currency in RCEP? A tale of three currencies," Economic Modelling, Elsevier, vol. 104(C).

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