Kenneth K. Chow

Nowcasting Chinese GDP: Information Content of Economic and Financial Data

This paper applies the factor model proposed by Giannone, Reichlin, and Small (2005) on a large data set to nowcast (i.e. current-quarter forecast) the annual growth rate of China’s quarterly GDP. The data set contains 189 indicator series of several categories, such as prices, industrial production, fixed asset investment, external sector, money market and financial market. This paper also applies Bai and Ng’s criteria (2002) to determine the number of common factors in the factor model. The identified model generates out-of-sample nowcasts for China’s GDP with smaller mean squared forecast errors than those of the Random Walk benchmark. Moreover, using the factor model, we find that interest rate data is the single most important block in estimating current-quarter GDP in China. Other important blocks are consumer and retail prices data and fixed asset investment indicators.

House Market in Chinese Cities: Dynamic Modeling, In-Sample Fitting and Out-of-Sample Forecasting

This paper attempts to contribute in several ways. Theoretically, it proposes simple models of house price dynamics and construction dynamics, all based on forward-looking agents’ maximization problems, which may carry independent interests. Simplified version of the model implications are estimated with the data from four major cities in China. Both price and construction dynamics exhibit strong persistence in al cities. Significant heterogeneity across cities is found. Our models out-perform widely used alternatives in in-sample-fitting for all cities, although similar success only limited to highly developed cities in out-of-sample forecasting. Policy implications and future research directions are also discussed.

A Factor Analysis of Trade Integration: The Case of Asian and Oceanic Economies

We study trade integration among 15 selected Asian and Oceanic economies using factor models. The principal component approach is employed to extract the common factor that drives trade integration from bilateral trade integration series. It is found that the estimated common trade integration factor has strong seasonal and deterministic components. In accordance with theory, the common trade integration factor is significantly associated with the economic growth and the trade barriers of the 15 economies. However, we find no evidence that the common trade integration factor is affected by foreign direct investment. The basic model is extended to incorporate an ASEAN factor that affects trade integration among the ASEAN economies in our sample.

Effects of capital flow on the equity and housing markets in Hong Kong

The revival of strong capital flows to emerging economies in the aftermath of the Global Financial Crisis in 2008-09 has rekindled the debate on the adverse effects of excessive capital inflows. We study the effects of official and illicit capital flows on Hong Kong, which is a small and open economy with minimal restrictions on cross-border fund movements. To illustrate the effects of different types of capital flows, we study official and illicit flows on Hong Kongi¯s equity and residential housing markets. It is found that the official and illicit capital flow measures reflect different facets of flow movements and exhibit differential effects on the equity and residential housing markets. The results highlight the complexity of managing capital flows, and the relevance of policies targeting specific sectors.

The Nexus of Official and Illicit Capital Flows – The Case of Hong Kong

The revival of strong capital flows to emerging economies in the aftermath of the 2008-9 Global Financial Crisis has rekindled the debate on the adverse effects of excessive capital inflows. In this study, we study effects of official and illicit capital flows on Hong Kong, which is a small and open economy with minimal restrictions on cross-border fund movements and is susceptible to international capital flows. To illustrate the differential impacts of different types of capital flow, we study the effects of two measures of official flows and two measures of illicit flows on Hong Kong’s equity and residential housing markets.It is found that these official and illicit capital flow measures reflect different facets of flow movements and have different effects on the economy. Specifically, they exhibit differential effects on the equity and residential housing markets. The results highlight the complexity of managing capital flight, and the relevance of polices targeting specific sectors.Further, it is found that, compared with capital flows, economic variables tend to offer a relatively higher level of explanatory power. Anecdotal evidence suggests that Hong Kong manages the effects of capital flows using various macro-prudential policies, which are deemed to be effective. One interpretation is that an effective governance framework and prudential regulatory environment improve market confidence and reduce vulnerability to economic and financial risks. In other words, it is important to keep one’s house in order, practice pre-emptive macro-prudential policies, and have an efficient infrastructure to accommodate capital flows. Our results indicate that Hong Kong has done quite well in the last few decades in enhancing its market efficiency and conducting macro-prudential policies.