Foreign versus domestic factors as sources of macroeconomic fluctuations in Hong Kong
AbstractThis paper uses a semi-structural vector autoregression approach to estimate the relative importance of domestic and foreign shocks as sources of macroeconomic fluctuations in Hong Kong since the adoption of the currency board. We find that external factors are clearly dominant in the medium- to long run. In view of the highly open nature of the Hong Kong economy and the linkages implied by the currency board arrangement, it is perhaps not unexpected. However, that these factors should account for fifty percent or more of unexpected fluctuations in real gdp and the gdp deflator at shorter horizons of one to two years is more surprising, and it is large in comparisons with other highly open small economies. Even if external shocks are dominant sources of macroeconomic fluctuations, there remain significant short-term influences of domestic variables. For example, in the historical decomposition of the evolution of output growth and inflation we discovered a significant role for domestic factors in the recent recession. Their impact resembles very much those that would be generated by a conventional aggregate supply contraction. A challenge for future research is to identify empirically the exact sources of domestic shocks.
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Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 05-2003.
Date of creation: Jun 2003
Date of revision:
new keynesian monetary policy; vector autoregression; macroeconomic fluctuations; economic cycles;
Other versions of this item:
- Hans Genberg, 2003. "Foreign Versus Domestic Factors as Souces of Macroeconomic Fluctuations in Hong Kong," Working Papers 172003, Hong Kong Institute for Monetary Research.
- NEP-ALL-2004-03-28 (All new papers)
- NEP-IFN-2004-03-28 (International Finance)
- NEP-MAC-2004-03-28 (Macroeconomics)
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