We introduce external risks, in the form of shocks to the level and volatility of world interest rates, into a small open economy model subject to the risk of sudden stops—large recessions together with abrupt reversals in capital inflows| and characterize optimal macroprudential policy in...

Chinese real business cycle (RBC) exhibits a unique pattern, which is characterized by moderate consumption volatility, substantially low investment volatility, and acyclical trade balance. These features are quite different from business cycles in other emerging markets and cannot be explained...

Standard sticky information pricing models successfully capture the sluggish movement of aggregate prices in response to monetary policy shocks but fail at matching the magnitude and frequency of price changes at the micro level. This paper shows that in a setting where firms choose when to...

This paper investigates the transmission mechanism of mortgage premium to characterize the relationship between the housing market and the business cycle for the U.S. economy. The model matches the main features of the U.S. housing market and business cycles well. The mortgage premium is crucial...

This paper examines Deflationary dynamics in Hong Kong with a linear and a nonlinear neural-network regime-switching (NNRS) model. The NNRS model is superior to the linear model in terms of in-sample specification tests as well as out-of-sample forecasting accuracy. As befitting a small and...

In this study I examine the welfare implications of monetary policy by constructing a novel New Keynesian model that properly accounts for asset pricing facts. I find that the Ramsey optimal monetary policy yields an inflation rate above 3.5% and inflation volatility close to 1.5%. The same...

This paper uses the factor-augmented VAR (FAVAR) framework to study the impact on the Hong Kong economy of the diverging monetary policies by the Fed, ECB and BoJ as well as the Mainland economy slowdown. The empirical results show that changes in US monetary policy mainly affect interest...

Vector autoregressions with Markov-switching parameters (MS-VARs) fit the data better than do their constant-parameter predecessors. However, Bayesian inference for MS-VARs with existing algorithms remains challenging. For our first contribution, we show that Sequential Monte Carlo (SMC)...

Even before their deployment in major economies, one of the concerns that has been voiced about central bank digital currency (CBDC) is that it might be too successful and lead to bank disintermediation, which could intensify further in the case of a banking crisis. Some also argue that CBDC...

This Occasional Paper analyses how significant expansions in central banks’ mandates, roles and instruments can result in challenges to the independence of monetary policy. The paper reviews, in particular, some of the key challenges to central bank independence brought about by the global...