Hong Kong's growth synchronization with China and the US: A trend and cycle analysis |
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| Institution: | 1. International Monetary Fund, United States;2. Hong Kong Monetary Authority, Hong Kong SAR;1. Institute for Information Systems and Computer Media, Graz University of Technology, Austria;2. GESIS – Leibniz Institute for the Social Sciences, Cologne, Germany;3. Department of Computer Science, University of Koblenz-Landau, Germany;4. Knowledge Technologies Institute, Graz University of Technology, Austria;5. Stanford Center for Biomedical Informatics Research, Stanford University, USA;1. University of Adelaide, Australia;2. The Johns Hopkins University Bologna Center, Italy;1. Lancaster University Management School, Lancaster, LA1 4YX, UK;2. Manchester Business School, Crawford House, Oxford Road, Manchester, M13 9PL, UK;1. Department of Economics, Seoul National University, San 56-1, Sillim-Dong, Gwanak-Gu, Seoul 151-746, Republic of Korea;2. MaebongGil 15, OksuDong, SeongdongGu, Seoul, 133-100, Republic of Korea;1. School of Economics and Finance, Curtin Business School, Australia;2. School of Business & Law, Edith Cowan University, Australia;1. Heriot-Watt University, UK;2. Sabanci University, Turkey |
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| Abstract: | This paper investigates the synchronization of Hong Kong's economic growth with mainland China and the US. We identify trends of economic growth based on the permanent income hypothesis. Specifically, we first confirm whether real consumption in Hong Kong and mainland China satisfies the permanent income hypothesis, at least in a weak form. We then identify the permanent and transitory components of income of each economy using a simple state-space model. We use structural vector autoregression models to analyze how permanent and transitory shocks originating from mainland China and the US affect the Hong Kong economy, and how such influences evolve over time. Our main findings suggest that transitory shocks from the US remain a major driving force behind Hong Kong's business cycle fluctuations. On the other hand, permanent shocks from mainland China have a larger impact on Hong Kong's trend growth. |
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| Keywords: | Business cycle synchronization Permanent income hypothesis Stochastic trend Structural vector autoregression |
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