The Dynamics of Interbank Rate Behavior Under Alternative Monetary Regimes: The Case of Hong Kong

This paper attempts to examine empirically the impacts of the institutional changes on the Hong Kong's interest rate, and to evaluate the relative merit of rules versus discretion over three distinct regimes. Our result suggests that the stance of policy making is associated with stability of the interbank market and thus the credibility of the currency board. We employ a structural break model under the Bayesian framework to endogenously determine the number and the type of structural breaks of the series under consideration. Finally, our empirical findings should shed a light on implications for monetary policies in Hong Kong.