Effects of U.S. Inflation on Hong Kong and Singapore
AbstractStandard economic models predict that the choice of an exchange rate regime has important implications for the interdependency of national monetary policies, which is sometimes measured by the degree of inflation transmission across borders. In this paper, we examine how inflation rates in two small open economies, namely Hong Kong and Singapore, interact with that in the U.S. It is found that the price levels in these three economies are cointegrated. Thus, a vector error correction model is used to study the inflation dynamics. It is found that Hong Kong and Singapore inflation rates, but not the U.S. one, respond to the error correction term. Compared with Singapore, the Hong Kong inflation rate is more responsive to U.S. price shocks. The different responses to U.S. price shocks are consistent with the difference in exchange rate regimes adopted by the two economies.
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Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 032001.
Length: 17 pages
Date of creation: Apr 2001
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exchange rate regime; inflation transmission mechanism; cointegration; common feature; codependence;
Other versions of this item:
- Cheung, Yin-Wong & Yuen, Jude, 2002. "Effects of U.S. Inflation on Hong Kong and Singapore," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 603-619, September.
- Yin-Wong Cheung & Jude Yuen, 2002. "Effects of U.S. Inflation on Hong Kong and Singapore," CESifo Working Paper Series 700, CESifo Group Munich.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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