Exchange Market Pressure and the Credibility of Macau's Currency Board
In this study, we assess the credibility of the currency board arrangement (CBA) of the Macau Special Administrative Region by studying the relationship between exchange market pressure (EMP) and the anchors of a rule-based CBA, namely, interest rate arbitrage, exchange rate arbitrage and economic discipline. A pure CBA signals its credibility by allowing the first two anchors to function automatically and by pursuing sound fiscal policies. The analysis' results suggest that Macau's CBA has been characterised by a state of low volatility since late 1992, with the brief exception of the East Asian financial crisis period. The paper's main finding is that fiscal fundamentals seem to have a more pronounced role in reducing EMP's variability during periods of low volatility whilst interest rate arbitrage is more important in periods of high volatility. We conclude that Macau's CBA is credible at present as reflected in the low frequency of observed EMP, in the narrowing of Macau's interest rate differential vis-agrave;-vis U.S. interest rates and in Macau's substantial fiscal reserves
Year of publication: |
[2006]
|
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Authors: | Braga de Macedo, Jorge |
Other Persons: | Braz, Jose (contributor) ; Pereira, Luis Brites (contributor) ; Nunes, Luis C. (contributor) |
Publisher: |
[2006]: [S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (33 p) |
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Series: | FEUNL Working Paper ; No. 492 |
Type of publication: | Book / Working Paper |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments 2006 erstellt |
Other identifiers: | 10.2139/ssrn.927936 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012732971
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