A soft edge target zone model: Theory and application to Hong Kong
AbstractHong Kong’s currency is pegged to the US dollar in a currency board arrangement. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities revamped the one-sided currency board mechanism into a symmetric two-sided system with a narrow exchange rate band. This paper reviews the characteristics of the new currency board arrangement and embeds a theoretical soft edge target zone model typifying many intermediate regimes, to explain the notable achievement of speculative peace and credibility since May 2005.
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Bibliographic InfoPaper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 21/2009.
Length: 25 pages
Date of creation: 21 Nov 2009
Date of revision:
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currency board arrangement; target zone model; credibility; Hong Kong;
Other versions of this item:
- Chen, Yu-Fu & Funke, Michael & Glanemann, Nicole, 2009. "A Soft Edge Target Zone Model: Theory And Application To Hong Kong," SIRE Discussion Papers 2009-61, Scottish Institute for Research in Economics (SIRE).
- Yu-Fu Chen & Michael Funke & Nicole Glanemann, 2009. "A Soft Edge Target Zone Model: Theory And Application To Hong Kong," Dundee Discussion Papers in Economics 228, Economic Studies, University of Dundee.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-30 (All new papers)
- NEP-IFN-2010-01-30 (International Finance)
- NEP-MON-2010-01-30 (Monetary Economics)
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