Effects of U.S. Inflation on Hong Kong and Singapore

Yin-Wong Cheung and Jude Yuen
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Jude Yuen: University of California, Santa Cruz

No 32001, Working Papers from Hong Kong Institute for Monetary Research

Abstract: Standard economic models predict that the choice of an exchange rate regime has important implications for the interdependency of national monetary policies, which is sometimes measured by the degree of inflation transmission across borders. In this paper, we examine how inflation rates in two small open economies, namely Hong Kong and Singapore, interact with that in the U.S. It is found that the price levels in these three economies are cointegrated. Thus, a vector error correction model is used to study the inflation dynamics. It is found that Hong Kong and Singapore inflation rates, but not the U.S. one, respond to the error correction term. Compared with Singapore, the Hong Kong inflation rate is more responsive to U.S. price shocks. The different responses to U.S. price shocks are consistent with the difference in exchange rate regimes adopted by the two economies.

Keywords: exchange rate regime; inflation transmission mechanism; cointegration; common feature; codependence (search for similar items in EconPapers)
JEL-codes: E31 F42 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2001-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Effects of U.S. Inflation on Hong Kong and Singapore (2002)
Working Paper: Effects of U.S. Inflation on Hong Kong and Singapore (2002)
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