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Hong Kong's growth synchronization with China and the US: A trend and cycle analysis

Dong He, Wei Liao and Tommy Wu ()

Journal of Asian Economics, 2015, vol. 40, issue C, 10-28

Abstract: This paper investigates the synchronization of Hong Kong's economic growth with mainland China and the US. We identify trends of economic growth based on the permanent income hypothesis. Specifically, we first confirm whether real consumption in Hong Kong and mainland China satisfies the permanent income hypothesis, at least in a weak form. We then identify the permanent and transitory components of income of each economy using a simple state-space model. We use structural vector autoregression models to analyze how permanent and transitory shocks originating from mainland China and the US affect the Hong Kong economy, and how such influences evolve over time. Our main findings suggest that transitory shocks from the US remain a major driving force behind Hong Kong's business cycle fluctuations. On the other hand, permanent shocks from mainland China have a larger impact on Hong Kong's trend growth.

Keywords: Business cycle synchronization; Permanent income hypothesis; Stochastic trend; Structural vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E21 E32 F44 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Hong Kong's Growth Synchronisation with China and the U.S.: A Trend and Cycle Analysis (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:40:y:2015:i:c:p:10-28

DOI: 10.1016/j.asieco.2015.08.003

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