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

Yu-Fu Chen; Michael Funke; Nicole Glanemann

doi:10.1515/snde-2012-0034

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

Yu-Fu Chen, Michael Funke, Nicole Glanemann

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

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
Pages (from-to)	373-393
Number of pages	21
Journal	Studies in Nonlinear Dynamics and Econometrics
Volume	17
Issue number	4
DOIs	https://doi.org/10.1515/snde-2012-0034
Publication status	Published - May 2013

Keywords

Currency Board Arrangement
Target zone model
Hong Kong

Access to Document

10.1515/snde-2012-0034

Cite this

@article{7391c9151cb04eaeadef3882cdafc63f,

title = "Off-the-record target zones:: theory with an application to Hong Kong{\textquoteright}s currency board",

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{\textquoteright} beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong{\textquoteright}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.",

keywords = "Currency Board Arrangement, Target zone model, Hong Kong",

author = "Yu-Fu Chen and Michael Funke and Nicole Glanemann",

year = "2013",

month = may,

doi = "10.1515/snde-2012-0034",

language = "English",

volume = "17",

pages = "373--393",

journal = "Studies in Nonlinear Dynamics and Econometrics",

issn = "1558-3708",

publisher = "Walter de Gruyter GmbH",

number = "4",

}

TY - JOUR

T1 - Off-the-record target zones:

T2 - theory with an application to Hong Kong’s currency board

AU - Chen, Yu-Fu

AU - Funke, Michael

AU - Glanemann, Nicole

PY - 2013/5

Y1 - 2013/5

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

U2 - 10.1515/snde-2012-0034

DO - 10.1515/snde-2012-0034

M3 - Article

SN - 1558-3708

VL - 17

SP - 373

EP - 393

JO - Studies in Nonlinear Dynamics and Econometrics

JF - Studies in Nonlinear Dynamics and Econometrics

IS - 4

ER -

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

Abstract

Keywords

Access to Document

Fingerprint

Cite this