The large presence of global banks in Hong Kong offers a well suited empirical setting to study the capital management of foreign bank subsidiaries from a host country perspective. Specifically, this paper uses the trade-off theory of leverage to investigate whether the leverage dynamics of...

This paper evaluates the financial spillovers between the US and emerging market economies (EMEs) using the methodology advocated by Diebold and Yilmaz (2009). Based on (i) cross-asset returns of sovereign bond, equity, and foreign exchange, and (ii) 27 individual long-term sovereign bond...

This paper employs a panel logistic regression to evaluate the role of global and domestic risk factors in explaining sovereign tail risk for 18 emerging economies (EMEs). Sovereign tail risk is defined as the likelihood of a sharp rise in sovereign credit risk. We find that both global and...

This paper develops a corporate bond pricing model following the structural approach in which the dynamics of the instantaneous risk-free interest rate are governed by a double square-root (DSR) process. Credit spreads generated from this pricing model depend explicitly upon the levels of...

In a target-zone exchange rate system, both fundamentals and exchange rate expectations, reflected in interest rate differentials between the domestic and anchor currency, determine the exchange rate. However, the scope to capture exchange rate expectations is limited when policy rates are close...

The international transmission of shocks in the global financial system has always been an important issue for policy makers. Different types of foreign shocks have different effects and policy implications. In this paper, we examine the effects of the recent U.S. financial crisis and the...

Using a non-Gaussian affine term-structure model, this paper evaluates the effectiveness of the date-based forward guidance at the zero lower bound. The model extracts the expected dynamics of two state variables (the short-term interest rate and its mean) embedded in the entire Treasury yield...

We present an exchange rate model in which a currency's exchange rate is confined in a wide moving band and a currency crash occurs when the rate breaches the lower boundary. A solution is derived from the standard log exchange rate equation for the model with a smooth-pasting condition at the...

When a currency’s appreciation expectation cannot be offset by lower interest rates which have fallen to the zero lower bound, the monetary authority needs to intervene to prevent currency appreciation due to capital inflows and resulting in foreign reserve accumulation. Based on a standard...

This paper develops a model based on a target-zone approach in which the dynamics of government bond yields follow a quasi-bounded process, such that the zero lower bound (ZLB) can be breached if the probability leakage condition of the dynamics is met. A one-sided U-shaped bond yield...