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In the shadow of the United States: the international transmission effect of asset returns

  • Chang, Kuang-Liang
  • Chen, Nan-Kuang
  • Leung, Charles Ka Yui

We examine how the fluctuations in financial and housing markets in U.S. affect the asset returns and GDP in Hong Kong. In contrast to the results from linear specifications, which concludes that the U.S. and Hong Kong are virtually delinked in terms of the asset markets, our regime-switching models indicate that the unexpected shock of US stock returns, followed by the TED spread, has the most significant effect on HK asset returns and GDP, typically in the regime with high return and low volatility. For the in-sample one-step-ahead forecasting, US Term spread stands out to be the best predictor.

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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 121.

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Length: 51 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:fip:feddgw:121
Note: Published as: Chang, Kuang-Liang, Nan-Kuang Chen and Charles Ka Yui Leung (2013), "In the Shadow of the United States: The International Transmission Effect of Asset Returns," Pacific Economic Review 18 (1): 1-40.
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