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A Comparison of the Economic Volatility Spillover Effect of Hong Kong with China and USA

Eric M.T. Wong
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Eric M.T. Wong: Division of Business and Management, United International College, Beijing Normal University-Hong Kong Baptist University, 2000 Jintong Road, Tangjiawan, Zhuhai, Guangdong Province, China.

Asian Economic and Financial Review, 2019, vol. 9, issue 7, 824-835

Abstract: Hong Kong has been part of China now for over twenty years. The economic activities between the two regions are more integrated due to policies for enhancing trade and finance, location convenience and fast economic growth in China. This article examined the economic integration between Hong Kong and China in terms of the volatility spillover effect of four economic indicators, namely real GDP growth rate, inflation rate, M2 supply and the three-month interbank offer rate. We used the Bivariate Multivariate GARCH model. As the USA has been the biggest trade partner of Hong Kong, the economic effect of the USA on Hong Kong was also analyzed. We found that the economic volatility of China significantly spills over to Hong Kong while there is less evidence found for a spillover effect from the USA. As the Hong Kong Dollar is still strictly pegged with the US Dollar, this paper provides evidence for the evaluation of Hong Kong?s monetary policy on the exchange rate system.

Keywords: Economic integration; Economic indicators; Volatility spillover; MGARCH; Exchange rate system; Anchor currency. (search for similar items in EconPapers)
JEL-codes: F15 F36 F44 F45 (search for similar items in EconPapers)
Date: 2019
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