Economics at your fingertips  

The credibility of Hong Kong’s currency board system: Looking through the prism of MS-VAR models with time-varying transition probabilities

Boris Blagov and Michael Funke

No 15/2014, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: ​This paper takes seriously the idea that the coefficients of a VAR and the variance of shocks may be time-varying and so employs a Markov regime-switching VAR model to describe and analyse the time-varying credibility of Hong Kong’s currency board system. The endogenously estimated discrete regime shifts are made dependent on macroeconomic fundamentals. This enables us to determine which changes in macroeconomic variables can trigger switches between the low and high credibility regimes. We carry out extensive testing to search for the most appropriate specification of the Markov regime-switching model. We find strong evidence of regime switching behaviour that portrays the timevarying nature of credibility in the historical data. Our own conditional volatility index provides anticipatory signals and amplifies the regime-switching transition probabilities. Publication keywords: Markov regime-switching VAR, exchange rate regime credibility, Hong Kong

JEL-codes: C11 C32 F31 F41 (search for similar items in EconPapers)
Date: 2014-08-25
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published in Published in Oxford Bulletin of Economics and Statistics, Vol. 78, 2016, pp. 895-914

Downloads: (external link) (application/pdf)

Related works:
Journal Article: The Credibility of Hong Kong's Currency Board System: Looking Through the Prism of MS-VAR Models with Time-Varying Transition Probabilities (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().

Page updated 2021-04-08
Handle: RePEc:bof:bofitp:2014_015