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Structural Change and Counterfactual Inflation-Targeting in Hong Kong

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  • Paul D. McNelis

    (Hong Kong Institute for Monetary Research, Fordham University)

Abstract

This paper evaluates structural change and adjustment in Hong Kong with Bayesian estimation of a small open economy with a fixed exchange rate show little or no change in the structural parameters or volatility estimates of the structural shocks before and after the Asian crisis and the experience of deflation. Terms of trade shocks are the most important sources of volatility for inflation in both periods. A counterfactual simulation shows that the dispersion of consumption and inflation volatility may have slightly decreased with an inflation-targeting regime with no uncertainty, but interest-rate volatility would have increased by factors of 50 to 100 percent.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 232009.

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Length: 30 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:hkm:wpaper:232009

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Keywords: Bayesian Estimation; Structural Change; Inflation Targeting;

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References

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  1. W. J. McKibbin & P. J. Wilcoxen, . "The Theoretical and Empirical Structure of the G-Cubed Model," Discussion Papers 118, Brookings Institution International Economics.
  2. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  3. Weshah A. Razzak, 2003. "Wage-Price Dynamics, the Labour Market and Deflation in Hong Kong," Working Papers 242003, Hong Kong Institute for Monetary Research.
  4. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
  5. Hans Genberg & Laurent Pauwels, 2003. "Inlation in Hong Kong, SAR- In Search of a Transmission Mechanism," Working Papers 012003, Hong Kong Institute for Monetary Research.
  6. Hans Genberg, 2003. "Foreign Versus Domestic Factors as Souces of Macroeconomic Fluctuations in Hong Kong," Working Papers 172003, Hong Kong Institute for Monetary Research.
  7. James Yetman, 2009. "Hong Kong Consumer Prices are Flexible," Working Papers 052009, Hong Kong Institute for Monetary Research.
  8. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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Cited by:
  1. 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.

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