A Tale of Two Currencies: the Asian Crisis and the Exchange Rate Regimes of Hong Kong and Singapore

Hong Kong has maintained a pegged exchange rate since 1983, while Singapore has been on a floating regime since the early 1970s. This paper provides an interpretation of the different performance of the Hong Kong and Singapore economy that could be attributable to the differences in their exchange rate regime. We develop a model that can help to interpret the differences in both the longer run trends in inflation and real exchange rates in Hong Kong and Singapore as well as the short differences in macroeconomic and real exchange rate volatility. The difference in the response of the two economies to the Asian crisis is also consistent with our model.     

Intra-competition between the Asian Four Little Dragons in US Markets

Using an optimizing model of import demands, the degree of competition between the Four Little Dragons in the US market are examined. This paper finds that the exports by Hong Kong can be substituted by Taiwan, and vice versa. Hong Kong and Singapore have some degree of substitution, although Singapore tends to have low elasticities of substitution with Taiwan and South Korea. Moreover, the relatively low own-price elasticities for Singapore and South Korea indicate their exporting goods are up-scaled. This suggests that non-price factors like product quality may be of importance in penetrating the US market.     

Foreign output shock in small open economies: A welfare evaluation of monetary policy regimes

We examine the impact of negative foreign output shocks, which entail negative demand side effects by lowering exports and positive supply side effects by lowering oil prices, on the welfare of non-oil producing, small open economies under five exchange rate and monetary policy regimes. We use a dynamic stochastic general equilibrium model with parameter values calibrated for Hong Kong, Israel, Singapore, South Korea and Taiwan. We find that welfare levels among the five policy regimes depend on the economy's share of oil imports in world oil consumption. Hong Kong, Singapore and Israel, which have smaller shares, maximize welfare under the Taylor rule, which targets both CPI inflation and real output. South Korea, with higher shares, and Taiwan, with more rigid prices, maximize welfare under real output targeting. CPI inflation targeting, nominal output growth targeting and fixed exchange rate regimes generate lower welfare. However, optimal monetary policy, which generates the highest welfare, gives greater weight on real output than CPI inflation.     

Dynamic linkages between exchange rates and stock prices: Evidence from East Asian markets

This study examines dynamic linkages between exchange rates and stock prices for seven East Asian countries, including Hong Kong, Japan, Korea, Malaysia, Singapore, Taiwan, and Thailand, for the period January 1988 to October 1998. Our empirical results show a significant causal relation from exchange rates to stock prices for Hong Kong, Japan, Malaysia, and Thailand before the 1997 Asian financial crisis. We also find a causal relation from the equity market to the foreign exchange market for Hong Kong, Korea, and Singapore. Further, while no country shows a significant causality from stock prices to exchange rates during the Asian crisis, a causal relation from exchange rates to stock prices is found for all countries except Malaysia. Our findings are robust with respect to various testing methods used, including Granger causality tests, a variance decomposition analysis, and an impulse response analysis. Our findings also indicate that the linkages vary across economies with respect to exchange rate regimes, the trade size, the degree of capital control, and the size of equity market.     

Per capita output convergence across Asian countries: Evidence from covariate unit root test with an endogenous structural break

This study investigates long-run convergence of per capita output across ten Asian countries over 1960 to 2014 by taking advantage of possible economic growth determinants, which may be responsible for setting Asian countries on a long-term steady-state growth path. We simultaneously examine the presence of output convergence in the region, as well as the statistical significance of these economic growth determinants, by using a unit root test with a stationary covariate. In addition, the study allows for the presence of endogenous structural changes in the time series under investigation in order to capture sharp drops in per capita outputs, which may be brought about by influential economic events, such as serious economic slumps in domestic economies or the global financial crises in 1997–98 and 2008–09. The limiting distribution of the covariate unit root test that permits structural breaks is also derived. The results show significant evidence to support the convergence hypothesis. In particular, asymptotically absolute convergence holds among Hong Kong, Korea, Singapore, and Taiwan. In addition, Thailand shows a convergence tendency in terms of asymptotically relative convergence toward Singapore. Malaysia, Indonesia, and India also turn out to converge toward Hong Kong in an asymptotically relative sense. Certain potential growth determinants, such as the trade/GDP ratio, inflation rate, government expenditure/GDP ratio, and quality of human capital, may help these countries achieve and maintain the long-run convergence process toward the reference countries in the region.     

Why the Tigers Roared: Capital Accumulation and the East Asian Miracle

Recent growth accounting studies of Hong Kong, Singapore, Taiwan and South Korea have found that the Solow residuals in these economies were relatively small. Given the high capital contributions, these results are often interpreted as evidence that factor accumulation, savings and investment were the principal cause of the East Asian miracle. This paper develops an alternative method of analysing these data, combining growth accounting methods with the linearized neoclassical growth model of Mankiw et al. (1992). The method explicitly quantifies the extent to which increases in productivity, as measured by the Solow residual, induced capital accumulation in these economies. It shows that in Hong Kong, Taiwan and South Korea, productivity growth contributed between half and two-thirds of the growth in GDP per worker over a 20-year period.     

East Asian growth experience revisited from the perspective of a neoclassical model

The business cycle accounting “wedge” methodology is used to identify the mechanisms driving the rapid growth of Hong Kong, Singapore, South Korea, and Taiwan since 1966. Analysis with a neoclassical growth model reveals that growth in these economies has been sustained by different mechanisms at different stages of development. Factor accumulation, which arises primarily from increases in capital wedges, accounts for most of the rapid growth in the earlier stages. However, in the later stages, total factor productivity growth becomes the primary driver.     

International Capital Movement and Monetary Independence in Asia

In this paper, we investigate the extent of monetary independence in a group of ten Asian countries: China, Malaysia, Japan, India, Indonesia, Philippines, Thailand, Korea, Singapore, and Hong Kong. While the traditional investigation has considered only the bivariate relationship between the home interest rate and the base rate, we employ both single-equation and vector autoregressive representations of the bivariate and the trivariate relationship including the desired (or optimal) interest rate. We find in most countries, that the ranking of monetary independence is relatively consistent across the models and methodologies although model specifications produce important differences for some countries such as Japan, Indonesia, and India. Trilemma suggests that a country cannot accomplish all three policy objectives: monetary independence, exchange rate stability, and free capital mobility. To increase monetary independence a country must choose between greater exchange rate flexibility or a lower degree of capital mobility. The fact that China and Malaysia, the two countries that are known to have imposed the strictest capital controls, consistently rank high in various scenarios while Hong Kong, which has maintained nearly the freest regime in capital markets, is lowest in monetary independence, indicates that perhaps capital controls may play a more important role than does exchange rate flexibility in securing independence in monetary policy making. On the other hand, countries that maintain greater exchange rate stability do not necessarily rank low, unless it is combined with greater capital mobility as in the case of Hong Kong.     

Cointegration analysis of quarterly tourism demand by Hong Kong and Singapore for Australia

Hong Kong and Singapore are two of the most important and fastest growing markets for tourists to Australia. The purpose of this paper is to investigate movements in the long-run demand for tourist travel by these two origin countries for Australia. Some of the leading macroeconomic variables examined to explain tourism demand are incomes in Hong Kong and Singapore, tourism prices in Australia, and transportation costs and exchange rates between the two countries and Australia. Seasonally unadjusted quarterly data are used for Hong Kong for the period 1975(1)–1996(4), and for 1980(4)–1996(4) for Singapore. Several proxy variables are used for the incomes of tourists from Hong Kong and Singapore to explain quarterly tourist arrivals to Australia. The augmented Dickey-Fuller test for unit roots is examined in the univariate framework, and Johansen's maximum likelihood procedure is used to test for cointegration and to estimate the number of cointegrating vectors. Error correction models are estimated to explain quarterly tourism demand by Hong Kong and Singapore for Australia.     

ECONOMIC BENEFITS OF GLOBALIZATION: THE IMPACT OF ENTRY TO THE WTO ON CHINA'S GROWTH

A panel data method is used to evaluate the impact of China's accession to the WTO. Time‐series data for China, Australia, Austria, Canada, Denmark, Finland, France, Germany, the UK, Hong Kong, Singapore, Korea, Japan, the Philippines, Indonesia, Malaysia, Thailand, the USA and Taiwan are used to construct the growth path that what would have been followed had there been no entry by China to the WTO. We find that from 2002 to 2007, accession to the WTO raised China's real economic growth rate by 2.4%, its export growth rate by 13.2% and its import growth rate by 18.89% a year.     

The accuracy of interest rate forecasts in the Asia-Pacific region: opportunities for portfolio management

We analysed interest rate forecasts from Australia, China, Hong Kong, India, Indonesia, Malaysia, New Zealand, Singapore, South Korea, Taiwan and Thailand. We assessed 532 forecast time series with a total of 85,264 individual interest rate forecasts. To do so, we carried out a comparison to naïve forecasts and investigated the forecast time series for topically orientated trend adjustments. In addition, we deployed the sign accuracy test and the unbiasedness test. The results are very sobering in part: 95.9% of all forecast time series are characterized by the phenomenon of topically orientated trend adjustments, and 99.4% of all forecast time series proved to be biased. Only a small proportion of the forecast time series (3.6%) reflected the future interest rate trend significantly more precisely than a naïve forecast. However, at the same time some of the results of the study are surprisingly positive. The sign accuracy test revealed that 48.3% of all forecast time series predict the interest rate trend significantly better than a random walk forecast.     

Economic policy uncertainty spillovers in small open economies: The case of Hong Kong

This paper studies the extent to which economic policy uncertainty shocks in major economies affect real economic activity in small open economies. We use Hong Kong as a case study. Following Baker, Bloom and Davis (2016), we construct a newspaper‐based economic policy uncertainty index for Hong Kong for the period 1998 to 2016. We estimate international spillovers of uncertainty and find large spillovers of uncertainty from major economies to Hong Kong. Furthermore, using a structural vector autoregressive approach, we show that a rise in domestic economic policy uncertainty leads to tight financial conditions, and lower investment and vacancy posting, dampening domestic output growth.     

Stock market interdependencies: Evidence from the asian NIEs

National asset markets have become more integrated in recent years. This paper investigates the interrelationship, if any, among the stock markets in four newly industrialized economies (NIEs) in Asia. The results indicate that a significant link exists between the stock markets of Hong Kong and Singapore and those of Japan and the United States. On the other hand, the markets with severe restrictions on cross-country investing, that is, Korea and Taiwan, are not responsive to innovations in foreign markets. Finally, the United States stock market influences, but is not influenced by, the four Asian markets.     

Estimates of the steady state growth rates for selected Asian countries with an extended Solow model

This paper develops an extended version of the Solow (1956) growth model in which total factor productivity is assumed a function of two important externalities viz., learning by doing and openness to trade. Using this framework we show that these externalities have played an important role to improve the long run growth rates of six Asian countries viz., Singapore, Malaysia, Thailand, Hong Kong, Korea and the Philippines. A few broad policies to improve the long run growth rates of these countries are suggested.     

Evidence of the duration-dependence from the stock markets in the Pacific Rim economies

This article investigates the duration-dependent feature of five Pacific Rim economies. The duration-dependent Markov Switching model is employed to achieve this objective. The Savage–Dickey density ratio is also computed in support of the duration-dependent Markov switching model. The possible bull and bear market dates for each stock market are also identified by the posterior probability from the empirical model. It is unambiguous that Japan, South Korea and Hong Kong are all characterized by duration-dependence in a bear market but no duration-dependence in a bull market. In the case of Taiwan and Singapore, the duration-dependence feature holds for both the bear and bull markets.     

The Long–Term Effectiveness of the Hong Kong Employees Retraining Programme

The Employees Retraining Programme in Hong Kong was promoted as the solution to structural unemployment resulting from rapid transformation of the economy. However, our study of the labour market performance of a group of trainees shows no evidence of any positive programme effect, more than three years after the completion of training, when compared to a group of job searchers. In particular, full time training is found to be less effective than part time training, and training in general skills is significantly less effective than training in specific occupational skills. This suggests problems in the design and implementation of retraining in Hong Kong.     

The relationship between developed equity markets and the Pacific Basin's emerging equity markets

Using a trivariate vector autoregression (VAR) model with a proper control for heteroscedasticity, this paper investigates the relationships between the two largest equity markets in the world—the U.S. and Japan—and the four Asian emerging equity markets: Hong Kong, Korea, Singapore, and Taiwan. Evidence indicates that the links between the developed markets and the Asian emerging markets (AEMs) began to increase after the stock market crash in October 1987, and have significantly intensified since the outbreak of the Asian financial crisis in July 1997.     

The role of foreign capital in domestic manufacturing productivity: empirical evidence from Asian economies

The paper empirically examines the relative contribution of foreign and domestic machinery and equipment on manufacturing productivity in seven Asian economies. A Cobb-Douglas production function is used to test whether foreign machinery is more productive than domestic machinery. The study is based on a pooled cross-sectional time-series model, including seven countries - Hong Kong, Singapore, South Korea, Malaysia, Indonesia, the Philippines and India - for the years 1975 to 1990. The results support the hypothesis that a country's stage of development, skill-level of its labour force, and the technology embodied in capital play a crucial role in determining the relative impact of foreign and domestic capital on manufacturing productivity.     

A NEW COMPARATIVE STUDY ON THE FREE‐FLOATING AND CURRENCY BOARD REGIMES IN HONG KONG

This study aims to compare the performance of free‐floating and currency board regimes for Hong Kong by examining historical data of the two on the output growth and inflation rate. Structural vector autoregression has been applied in the empirical analysis. Without making a strong assumption of unit variance in the residual matrix, this study applies a more natural approach proposed by Cecchetti and Rich to recover the structural parameters. The study has further investigated the recovery of the economy under a demand shock under different exchange rate regimes, in order to provide some evidence to answer why Hong Kong's recovery process after the Asian financial crisis is relatively longer than that in other economies with a managed floating exchange rate regime. New evidence in this study indicates that output recovers much faster in a flexible exchange rate regime than in a fixed exchange rate regime after an aggregate demand shock. Furthermore, this study has applied a more robust method in the counterfactual analysis when comparing the two regimes. New evidence in this study suggests that a free‐floating regime may generate much smaller output variance in Hong Kong and deliver higher output and price levels to Hong Kong.     

东亚新兴债券市场发展比较

积极发展和培育债券市场乃是金融危机后东亚新兴市场经济体调整金融结构的重中之重。本文就东亚新兴债券市场的市场规模、债券期限结构、二级市场流动性、债券投资者基础以及债券市场的基础设施建设等进行了比较。虽然都属于新兴债券市场,但所处的发展水平并不是整齐划一的。