Hong Kong’s Growth Synchronization with China and the U.S.: A Trend and Cycle Analysis

April 28, 2015

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Dong He, Wei Liao, and Tommy Wu. Hong Kong’s Growth Synchronization with China and the U.S.: A Trend and Cycle Analysis, (USA: International Monetary Fund, 2015) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the synchronization of Hong Kong SAR’s economic growth with mainland China and the United States. This paper identifies trends of economic growth based on the permanent income hypothesis. Specifically, the paper confirms whether real consumption in Hong Kong SAR and mainland China satisfy the permanent income hypothesis, at least in a weak form. It then identifies the permanent and transitory components of income of each economy using a simple state-space model. It uses structural vector autoregression models to analyze how permanent and transitory shocks originating from mainland China and the United States affect the Hong Kong economy, and how such influences evolve over time. The paper’s main findings suggest that transitory shocks from the United States remain a major driving force behind Hong Kong SAR’s business cycle fluctuations. On the other hand, permanent shocks from mainland China have a larger impact on Hong Kong SAR’s trend growth.

Subject: Balance of payments, Business cycles, Consumption, Economic growth, Foreign direct investment, Income, International trade, National accounts, Service exports

Keywords: Business cycle, Business cycle synchronization, Business cycles, Consumption, Consumption data, Consumption in Hong Kong, Foreign direct investment, Global, Hong Kong block, Hong Kong economy, Hong Kong SAR financial market, Hong Kong's transformation, Income, Income hypothesis, Outward FDI position, Permanent income hypothesis, Productivity of the Hong Kong SAR economy, SAR financial services, Service exports, Shares in Hong Kong SAR financial services, Stochastic trend, Structural vector autoregression, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/082
Stock No:

WPIEA2015082
ISBN:

9781484336106
ISSN:

1018-5941

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