On the sustainability of currency boards: Evidence from Argentina and Hong Kong

Chun-Yu Ho and Wai-Yip Alex Ho

No 20, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: This paper examines the sustainability of the currency board arrangements in Argentina and Hong Kong. We employ a Markov switching model with two regimes to infer the exchange rate pressure due to economic fundamentals and market expectations. The empirical results suggest that economic fundamentals and expectations are key determinants of a currency board’s sustainability. We also show that the government’s credibility played a more important role in Argentina than in Hong Kong. The trade surplus, real exchange rate and inflation rate were more important drivers of the sustainability of the Hong Kong currency board.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:20

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