Macroeconomic Implications for Hong Kong SAR of Accommodative U.S. Monetary Policy

November 1, 2009

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Format: Chicago

Papa M N'Diaye. Macroeconomic Implications for Hong Kong SAR of Accommodative U.S. Monetary Policy, (USA: International Monetary Fund, 2009) accessed December 22, 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 discusses the potential macroeconomic implications for Hong Kong SAR of accommodative monetary policy in the United States. It shows, through model simulations, that a resumption of the credit channel in Hong Kong SAR has the potential to create inflation in both goods and asset markets. Expansionary financial conditions will likely have a greater impact in fueling asset price inflation, manifested in the model through a strong increase in equity prices. Higher asset prices could, in turn, through a financial accelerator mechanism, lead to further credit expansion and an upward cycle of asset prices and credit. This cycle, if unchecked, can potentially feed into volatility in consumption, output and employment and complicate macroeconomic management. The simulation results suggest there is a role for countercyclical prudential regulations to mitigate the amplitude of the cycle and lessen the financial and macroeconomic volatility associated with an unwinding of the credit-asset price cycle.

Subject: Asset prices, Credit, Fiscal policy, Inflation, Self-employment

Keywords: Asset, Asset price, Boom cycle, Exchange rate, Price, WP

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/256
Stock No:

WPIEA2009256
ISBN:

9781451874020
ISSN:

1018-5941

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