Do the uncertainty-induced capital outflows matter in currency crisis? Evidence from the Hong Kong speculative attacks

Douglas Wong and Anson Wong

Finance Research Letters, 2021, vol. 39, issue C

Abstract: Recent political issues coupled with a rapidly deteriorating economic condition in Hong Kong trigger significant capital outflows. These events have in turn raised concerns on the viability of maintaining the peg as well as the possibility of another looming currency crisis. In this paper, we utilize the time-varying parameter VAR model with stochastic volatility to examine the impact of uncertainty on capital flows. Our findings strongly confirm that the effect of uncertainty shock on capital flows is slight while the speculative shock plays a vital dominant role on capital movement resulting in a currency crisis.

Keywords: Time-varying parameter VAR; Currency crisis; Uncertainty shock; Speculative shock; Hong Kong (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s154461231931390x

DOI: 10.1016/j.frl.2020.101643

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