This study rationalizes the negative HKD-USD interest rate (HIBOR-LIBOR) differentials observed after the US interest rate hike on December 17, 2015. Why do arbitragers not eliminate the differentials until parity? We first analyse two practical concerns that are typical from the perspective of...

This paper argues that there is scope for monetary policy under an exchange rate anchor, and discusses the related monetary policy design and implementation. It shows that the exchange rate can be used as the main monetary policy instrument while the policy rate can target the exchange rate. An...