A SOFT EDGE TARGET ZONE MODEL: THEORY AND APPLICATION TO HONG KONG

Hong Kong’s currency is pegged to the US dollar in a currency board arrangement. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities revamped the one-sided currency board mechanism into a symmetric two-sided system with a narrow exchange rate band. This paper reviews the characteristics of the new currency board arrangement and embeds a theoretical soft edge target zone model typifying many intermediate regimes, to explain the notable achievement of speculative peace and credibility since May 2005.

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Year of publication:	2009-11
Authors:	Chen, Yu-Fu ; Funke, Michael ; Glanemann, Nicole
Institutions:	Department of Economics Studies, University of Dundee
Subject:	Currency Board Arrangement \| Target Zone Model \| Credibility \| Hong Kong

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Extent:	application/pdf
Series:	Dundee Discussion Papers in Economics. - ISSN 1473-236X.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 228 20 pages
Classification:	C61 - Optimization Techniques; Programming Models; Dynamic Analysis ; E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System ; F31 - Foreign Exchange ; F32 - Current Account Adjustment; Short-Term Capital Movements
Source:	RePEc - Research Papers in Economics

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