The Credibility of Hong Kong's Link from the Perspective of Modern Financial Theory

Hans Genberg and Cho‐hoi Hui

Journal of Money, Credit and Banking, 2011, vol. 43, issue 1, 185-206

Abstract: Hong Kong's linked exchange rate system (LERS) has been in operation since 1983, during which time many other fixed exchange rate systems have succumbed to shocks and/or speculative attacks. This paper investigates how market participants assessed changes made to the LERS by using the tools of modern finance to extract information from financial asset prices about market expectations. These changes have been characterized as making the system less discretionary over time. We find that decreasing the discretionary element of the LERS led to an increase in credibility of the arrangement.

Date: 2011
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https://doi.org/10.1111/j.1538-4616.2010.00370.x

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Journal Article: The Credibility of Hong Kong's Link from the Perspective of Modern Financial Theory (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:43:y:2011:i:1:p:185-206

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