Shu-ki Tsang

Currency substitution and speculative attacks on a currency board system

Abstract A currency board arrangement (CBA) is supposed to be robust against attacks. Currency substitution complicates life, with controversial implications for floating versus fixed exchange rate regimes. After reporting evidence of currency substitution in Hong Kong, a monetary model incorporating currency substitution is used to estimate the shadow exchange rate and the probability of speculative attack on the Hong Kong dollar. A decomposition analysis of a Markov-switching model indicates that the no-attack regime was the most durable one. This implies that Hong Kongs quasi CBA was relatively robust against both speculative attacks and currency substitution.

The Causal Relationships Between Residential Property Prices and Rentals in Hong Kong" 1982-1991

This study examines the causal relationships between sale price changes and rental rate changes in the Hong Kong real estate market. Three different hypotheses are put forth: 1) the demands in the two markets are substitutes, 2) prices and rentals are positively correlated; and 3) prices and rentals are not correlated because of market segmentation. Using quarterly data of sale prices and rental rates for the five categories of residential property from four different districts, causal relationships are not found in 29 cases out of 40. For the other 11 cases, we find that price changes lead rental rate changes. The lag period is found to be one quarter, and this shows that the two markets are efficient: only one quarterly lag is necessary to establish causality where it exists.

Banking Deregulation and Macroeconomic Impact in China: A Theoretical Analysis and Implications of Wto Accession to the Mainland and Hong Kong

Since the beginning of 1990s, the credit balance of the banking system in mainland China has experienced a big swing from negative to positive. The balance has continued to expand up to now. It seems that both negative and positive credit balances are so large that the financial resources have been utilized inefficiently by the banking system. On the eve of Chinai¦s accession to the World Trade Organization (WTO), challenges from banking competition will increase. In this paper a three-sector equilibrium model of monopolistic banking competition is set up and is applied to analyze the impact of the expanding credit balances and banking reform on the Chinese economy. Through theoretical analysis, reasons for the expanding credit balance are provided and some possible solutions are given. Chinas accession to the WTO will present many challenges to the state-owned banks. Foreign banks will be allowed to compete directly with Chinese local banks. We found that competition will not only promote Chinas GDP, investment, consumption and deposits as well as bring benefits to consumers, but also provide the banking sector from Hong Kong with new opportunities.

Simulating the impact of foreign capital in an open-economy macroeconomic model of China

Abstract Since 1978, Chinas open-economy reform process has been the subject of increasing academic interest. A pioneering medium-sized econometric model is constructed using the SNA accounting framework and taking into account the stylized facts of the countrys reforms and her absorption of foreign capital. In estimation, the ‘general to specific’ and error-correction modelling techniques are adopted wherever appropriate. A 50% reduction in foreign capital utilized and a total absence of flows from Hong Kong are simulated, yielding interesting insights into the operation of the opening of the Chinese economy.

Optimum Currency Area for Mainland China and Hong Kong? Empirical Tests

After the political unification of Hong Kong with China, Hong Kong is supposed to function as a separate economic entity under the framework of i§one country, two systemsi¨. However, the increasingly close ties between the two economies, particularly in recent years, have raised the possibility of full economic integration despite political constraints, and even of monetary union as the Chinese currency progresses towards full convertibility. This paper employs the theory of optimum currency area (OCA) and adopts two techniques over a range of economic variables to test whether Mainland China and Hong Kong constitute an OCA. The historical results presented in this paper are very sceptical of a positive answer. Empirical findings based on disaggregated data show some signs of nominal and real convergence only between Hong Kong and parts of Eastern China, driven by trade. This seems to be consistent with the actual trajectory of economic integration. However, all other results, even those based on higher frequency price data, point to a lack of evidence that Hong Kong and Mainland China as a whole as yet constitute an OCA.