Exchange-Rate Systems and Interest-Rate Behaviour: The Experience of Hong Kong and Singapore

• Main Authors: TSE, Yiu Kuen, YIP, Paul S. L.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2006
• Subjects: Asian Financial Crisis; BEKK model; Currency Board System; Exchange-rate system; GARCH model; Asian Studies; Econometrics; Finance
• Online Access: https://ink.library.smu.edu.sg/soe_research/455; https://ink.library.smu.edu.sg/context/soe_research/article/1454/viewcontent/Exchange_Rate_Systems_and_Interest_Rate_Behaviour_HK_Singapore_2005_pp.pdf
• Institution: Singapore Management University

The Currency Board System in Hong Kong and the monitoring band system in Singapore are important benchmarks for two different exchange-rate systems. In this paper we consider the implications of the two exchange-rate systems on the interest-rate behaviour of the two economies. We examine the domestic–US interest differentials under the two exchange-rate regimes during the Asian Financial Crisis as well as the pre-and post-crisis periods. Using a bivariate generalized autoregressive conditional heteroscedasticity model, we also investigate whether there is any change in the correlation between the domestic and US interest rates due to the Asian Financial Crisis.