Dundee Discussion Papers in Economics 235: Off-the-record target zones: theory with an application to Hong Kong’s Currency Board

Yu-Fu Chen; Michael Funke; Nicole Glanemann

Dundee Discussion Papers in Economics 235: Off-the-record target zones: theory with an application to Hong Kong’s Currency Board

Yu-Fu Chen, Michael Funke, Nicole Glanemann

Research output: Working paper/Preprint › Discussion paper

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Abstract

This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band.

Original language	English
Publisher	University of Dundee
Publication status	Published - 2010

Publication series

Name	Dundee Discussion Papers in Economics
Publisher	University of Dundee
No.	235
ISSN (Print)	1473-236X

Keywords

Currency Board Arrangement
Target zone model
Hong Kong

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DDPE_235.pdf

1 Discussion paper

Off-the-record target zones: theory with an application to Hong Kong’s Currency Board
Chen, Y.-F., Funke, M. & Glanemann, N., 2010, Helsinki: Bank of Finland, 31 p. (BOFIT Discussion Papers; no. 6).
Research output: Working paper/Preprint › Discussion paper

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323 Downloads (Pure)

Cite this

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abstract = "This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band.",

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N2 - This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band.

AB - This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band.

KW - Currency Board Arrangement

KW - Target zone model

KW - Hong Kong

M3 - Discussion paper

T3 - Dundee Discussion Papers in Economics

BT - Dundee Discussion Papers in Economics 235

PB - University of Dundee

ER -

Dundee Discussion Papers in Economics 235: Off-the-record target zones: theory with an application to Hong Kong’s Currency Board

Abstract

Publication series

Keywords

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Research output

Off-the-record target zones: theory with an application to Hong Kong’s Currency Board

Cite this