Cardiff University | Prifysgol Caerdydd ORCA
Online Research @ Cardiff 
WelshClear Cookie - decide language by browser settings

Should Hong Kong switch to Taylor rule?—Evidence from DSGE model

Zhao, Zhiqi, Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947 and Minford, Patrick ORCID: https://orcid.org/0000-0003-2499-935X 2022. Should Hong Kong switch to Taylor rule?—Evidence from DSGE model. Applied Economics 54 (50) , pp. 5851-5872. 10.1080/00036846.2022.2053655

[thumbnail of ShouldHongKongSwitchtoTaylorRule.pdf] PDF - Accepted Post-Print Version
Available under License Creative Commons Attribution Non-commercial.

Download (1MB)

Abstract

This paper studies the economy of Hong Kong through the lens of a small open economy DSGE model with a currency board exchange rate commitment. It assumes flexible prices and a banking system that provides credit to entrepreneurial household firms; the money supply is fully backed by reserves under the currency board. We estimate and evaluate the model by Indirect Inference over the sample period of 1994Q1-2018Q3; we find that it matches the data behaviour as represented by a VAR. We examined the economy’s volatility using bootstrapping of the model innovations, under both the estimated currency board model and a standard alternative regime with floating exchange rate and a Taylor rule; we found that Hong Kong welfare is higher in the currency board, which substantially reduces output volatility.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Routledge
ISSN: 0003-6846
Date of First Compliant Deposit: 8 March 2022
Date of Acceptance: 7 March 2022
Last Modified: 07 Nov 2023 14:52
URI: https://orca.cardiff.ac.uk/id/eprint/148112

Actions (repository staff only)

Edit Item Edit Item

Downloads

Downloads per month over past year

View more statistics