Paul S. L. Yip

Interpreting dummy variables and their interaction effects in strategy research

Dummy variables have been employed frequently in strategy research to capture the influence of categorical variables. However, misinterpretation of results may arise, especially when interaction effects between dummy variables and other explanatory variables are involved in a regression. We discuss two approaches of entering dummy variables into a regression and their associated interpretations. We discuss some common mistakes of interpretation and hypothesis testing found in two recently published strategy papers, and highlight the advantages of our recommended approach over the approach usually adopted by management researchers.

Competition, agglomeration, and performance of Beijing hotels

Agglomeration theory argues that locating close to competitors can be beneficial in terms of gaining from heightened demand – more frequent consumer visits and subsequent purchases through reducing consumer search costs. This paper examines the trade-off between competition and the agglomeration effects of physical proximity in the Beijing hotel industry. It seeks to answer two questions: (1) What types of hotels contribute more to agglomeration? (2) What types of hotels benefit more from agglomeration? The results suggest that only high star-ranking joint venture hotels contribute to heightened demand while hotels of all star rankings benefit similarly from agglomeration.

On the Neutrality of Exchange Rate Policy in Singapore

This article shows that there is no long-run trade-off between exchange rate appreciation and export competitiveness in Singapore. The policy implication is that Singapore can use exchange rate appreciation to contain its inflation without hindering its competitiveness in the long run. Nevertheless, sluggishness of price in the short run implies that there is a short-run trade-off between exchange rate changes and export competitiveness. As a result, Singapore can use exchange rate depreciation to offset the impact of adverse cyclical external demand shock, as it did during the 1985-86 recession and the 1997-98 Asian financial crisis.

Is Price in Hong Kong That Flexible? Evidence from the Export Sector

Using the Johansen procedure, this paper estimates and compares the adjustment speeds of Hong Kong’s export volume and export price. Result of this will have profound implications on the debate of the appropriateness of Hong Kong’s current exchange-rate system. Two cointegrating vectors were found in our system, with one postulating the export volume equation and another postulating the export price equation. It was found that export volume will adjust relatively fast to shocks in the export volume equation, and that export price will adjust relatively slow to shocks in the export volume equation. On the other hand, export volume will be insensitive, and export price will adjust at moderate speed, to disequilibrium in the export price equation. Based on the estimated model, we also conducted simulation exercises to highlight the impacts of the appreciation of the US Dollar and the reduction in world demand on Hong Kong’s export volume during the crisis and post-crisis periods.

THE RISK OF PROPERTY BUBBLES IN HONG KONG AND SINGAPORE: ANOTHER AFTERSHOCK CRISIS OF THE GLOBAL FINANCIAL TSUNAMI?

This paper first provides a brief review of the global financial tsunami. It then explains why the quantitative easing in the US and the unique characteristics of the Asian property markets have contributed to the formation of property bubbles in some Asian economies. Thereafter, it discusses the possibility of a bursting of property bubbles in Hong Kong, Singapore or another Asian economy a few years from now, and highlights that the bursting of the property bubble in that economy could trigger severe corrections of property prices in this region through the contagion effect. After pointing out that the implied crisis could be more severe than that during the Asian Financial Crisis, it (i) discusses policies that could mitigate the damages of the potential crisis and (ii) draws important lessons and conclusions that could pre-empt similar disasters in the future.

CHINA'S EXCHANGE RATE SYSTEM REFORM

This paper first documents the rationales behind the transitional exchange rate system reform adopted by China on 21 July 2005. It then outlines the theory behind the medium- and long-term exchange rate arrangements that could be adopted. Thereafter, the paper provides recommendations on supplementary packages that could increase the chance of a successful reform, and increase Chinas immunity and resilience against financial crises in the future. Finally, the paper discusses the market and economic developments after the transitional reform, and highlights that failure to check the stock market bubble and rampant property inflation could turn the initial success of the reform to an eventual failure and bring disasters to China in the longer future.

CHINA’S EXCHANGE RATE SYSTEM REFORM: TWO POTENTIAL MISTAKES AND THE RECOMMENDED LONG-TERM SYSTEM

Further to the author’s recommended transitory and medium-term exchange rate system reforms that was implemented in China since July 2005, this paper explains that: (1) a long-term reform towards a floating exchange rate system with free capital mobility will cause huge damages to the Chinese economy. It then proposes a long-term exchange rate system that would probably benefit China the most; and (2) there is a serious mistake in China’s latest exchange rate policy: The Chinese central bank has mistakenly allowed the renminbi exchange rate to rise with the strong rebound of the US dollar. This will cause not only a substantial drag in China’s export and GDP growth, but will also eventually make China’s financial and economic system vulnerable to a highly disruptive correction in the renminbi exchange rate.

China's Exchange Rate System Reform: Lessons for Macroeconomic Policy Management

The author of this book is the original proponent of Chinas exchange rate system reform announced in 2005. This book discusses: * The transitional, medium-term and long-term designs of the reform * Chinas achievements and mistakes on the reform * Chinas banking reform and its lessons to other emerging economies * Maintaining a certain trade surplus as a dynamically optimal choice for China * Chinas stock market bubble and the gradual bubble squeezing strategy * Chinas property inflation and its solution * Chinas fiscal and monetary policies during and after the global financial tsunami * Risk of global asset inflation, CPI inflation and cycle of exchange rate after the financial tsunami * Likelihood of an asset bubble and then a crisis in economies outside the US during the overheated phase of the recoveryThrough these discussions, the author hopes to share his knowledge on macroeconomic policy management accumulated over the past thirty five years. In particular, he would like to share his insights on macroeconomic policy management before, during and after an asset inflation era or a crisis period. He would also like to warn policy makers and financial investors on the likelihood of an asset bubble and then a crisis in economies outside the US. The author hopes this book could eventually stimulate the emergence of “macroeconomic policy management” as a new and important discipline in economics.While the focus of the book is on macroeconomic policy management, it also offers important lessons and strategies on share and property investments. Thus, economists, policy makers, central bank officials, economics students, business and finance professionals, individual investors and academia in other disciplines will find the book useful.

Exchange rate systems and policies in Asia

Editorial Overview: Important Lessons from Some Major Exchange Rate and Monetary Experiences in Asia (P S L Yip) The International Monetary Fund and Exchange Rate Crisis Management (C-Y Lim) The Case for an Intermediate Exchange Rate Regime (J Williamson) Japans Deflationary Hangover: Wage Stagnation and the Syndrome of the Ever-Weaker Yen (R McKinnon) Managing Flexibility: Japanese Exchange Rate Policy, 1971-2007 (S Takagi) Chinas Exchange Rate System Reform (P S L Yip) The Fog Encircling the Renminbi Debate (Y-W Cheung et al.) Insulation of India from the East Asian Crisis: An Analysis (P Dua & A Sinha) Singapores Exchange Rate Policy: Some Implementation Issues (H-K Chow).

On the Maintenance Costs and Exit Costs of the Peg in Hong Kong

This paper attempts to pioneer a discussion on the exit and maintenance costs of the Currency Board System (CBS) in Hong Kong, and hopes to invite more debate on the issue. It suggests that the exit costs will depend on the timing of an exit, whether there are supplementary packages to mitigate the exit costs, and the choice of an alternative exchange rate system. In particular, it suggests that the monitoring band system favored by Williamson (2000) could help to reduce the exit costs. In addition, the paper points out that there are ways to reduce both the exit and maintenance costs. It then proposes a reform that could benefit the economy regardless of whether the policy maker eventually chooses to continue with or abandon the peg. The study is not only crucial to Hong Kong, but also important to other economies with a CBS as well as to the debate on the choice of exchange rate system.