How Do Macroeconomic Developments in Mainland China Affect Hong Kong's Short-term Interest Rates?
This paper studies the significance of Mainland-related shocks in determining Hong Kong money market interest rates after controlling for the influences of US variables. Analysis using a vector auto-regression model suggests that an unexpected rise in the Mainland policy interest rate, or a higher-than-expected growth in Mainland output or money supply, in general produces a positive and hump-shaped effect on the three-month HIBOR. Forecast error variance decomposition shows that US shocks still dominate, but Mainland shocks have become more important in accounting for the unexpected fluctuations in HIBOR in recent years. A historical decomposition shows that from autumn 2003 to spring 2005 the large negative spread between HIBOR and LIBOR was mainly due to Mainland factors. Thus, while the HIBOR-LIBOR spread is expected to be bounded inside a band that reflects the width of the Convertibility Zone of the Linked Exchange Rate system, Mainland-related shocks could exert a significant influence on the actual size of the spread.
|Date of creation:||Nov 2007|
|Contact details of provider:|| Postal: 55th Floor, Two International Finance Centre, 8 Finance Street, Central|
Web page: http://www.info.gov.hk/hkma/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wensheng Peng & Frank Leung, 2005. "A Monetary Conditions Index for Mainland China," Working Papers 0501, Hong Kong Monetary Authority.
- Hans Genberg, 2003.
"Foreign Versus Domestic Factors as Souces of Macroeconomic Fluctuations in Hong Kong,"
172003, Hong Kong Institute for Monetary Research.
- Hans Genberg, 2003. "Foreign versus domestic factors as sources of macroeconomic fluctuations in Hong Kong," IHEID Working Papers 05-2003, Economics Section, The Graduate Institute of International Studies.
- Bernard J Laurens & Rodolfo Maino, 2007. "China; Strengthening Monetary Policy Implementation," IMF Working Papers 07/14, International Monetary Fund.
- Tony Latter, 2007. "Rules versus discretion in managing the Hong Kong dollar, 1983-2006," Working Papers 022007, Hong Kong Institute for Monetary Research.
- Cho-Hoi Hui & Tom Fong, 2007. "Is the Hong Kong Dollar Exchange Rate "Bounded" in the Convertibility Zone?," Working Papers 0713, Hong Kong Monetary Authority.
- Hans Genberg & Li-gang Liu & Xiangrong Jin, 2006. "Hong Kong's Economic Integration and Business Cycle Synchronisation with Mainland China and the US," Working Papers 0611, Hong Kong Monetary Authority.
When requesting a correction, please mention this item's handle: RePEc:hkg:wpaper:0717. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Chan)
If references are entirely missing, you can add them using this form.