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

Yu-Fu Chen, Michael Funke and Nicole Glanemann

No 228, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: 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.

Keywords: Currency Board Arrangement; Target Zone Model; Credibility; Hong Kong (search for similar items in EconPapers)
JEL-codes: C61 E42 F31 F32 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2009-11
New Economics Papers: this item is included in nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: A Soft Edge Target Zone Model: Theory And Application To Hong Kong (2009)
Working Paper: A soft edge target zone model: Theory and application to Hong Kong (2009)
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