Hong Kong as a city-state economy often records current account surplus. Empirical results show that the surplus is positively related to trade openness, terms of trade, volatility of output gap, the M2-to-GDP ratio and the non-service-sector-to-GDP ratio, and is negatively associated with the...

In this paper, we assess the interdependence between equity markets in the EMEAP region and the US, and across the EMEAP markets using two indicators, namely the dynamic conditional correlation and the spillover index. These indicators show that equity market interdependence has increased...

This paper estimates macroeconomic credit risk of banks¡¦ loan portfolio based on a class of mixture vector autoregressive models. Such class of models can differentiate distributions of default rates and macroeconomic conditions for different market situations and can capture their dynamics...

This paper develops both a bivariate and a multivariate indicator model using a large group of high-frequency economic indicators to forecast Hong Kong's non-rental component inflation. Indicator models can offer timely forecasts on future inflation developments because monthly indicators are...

This paper studies the interaction between foreign trade and domestic demand and supply in China¡¦s economic transformation. It compares China¡¦s export dependency with other economies using input-output analysis. The paper also conducts econometric analysis of provincial level data to...

This paper presents a benchmarking model for validation of default probabilities of listed companies for Basel II purposes. The model is based on the recent studies on the predictive capability of structural credit risk models. Benchmark ratings and one-year default probabilities are assigned to...

The predictability of stock market returns has been a challenge to market practitioners and financial economists. This is also important to central banks responsible for monitoring financial market stability. A number of variables have been found as predictors of future stock market returns with...

Currency option traders usually use the Black-Scholes model in which the exchange rate follows a lognormal process. However, it is found that exchange rates may follow a mean-reverting process instead, for example, certain currencies are constrained to move inside target zones or under a...

This paper develops a multivariate time series model to forecast output growth and inflation in the Hong Kong economy. We illustrate the steps involved in designing and building a vector autoregression (VAR) forecasting model, and consider three types of VAR models, including unrestricted,...

This paper estimates the equilibrium path of the Hong Kong dollar real effective exchange rate (REER) and compares it with the actual path of the Hong Kong dollar REER to assess the extent of real exchange rate misalignment. Empirical results from various approaches of exchange rate assessment...