Private Sector Activity in Hong Kong SAR and the Fed: Transmission Effects through the Currency Board

February 23, 2016

Preview Citation

Format: Chicago

Joong S Kang. Private Sector Activity in Hong Kong SAR and the Fed: Transmission Effects through the Currency Board, (USA: International Monetary Fund, 2016) accessed September 19, 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

As the U.S. Fed begins to increase the Federal Funds rate, interest rates in Hong Kong SAR will rise in tandem under the Currency Board system. While domestic economic activity in Hong Kong SAR remained resilient in previous rate hike cycles, there is a concern that the impact of higher interest rates would be larger this time due to historic high levels of leverage in both household and corporate sectors. However, macroprudential measures have contained the debt service burden among new borrowers and leverage quality of corporate sector is healthier than its peers in the region. Empirical estimations of aggregate consumption and corporate investment show that private domestic demand is likely to remain robust with the anticipated gradual increase in interest rates over the next few years and taking into account the buffers in the system.

Subject: Consumption, Corporate investment, Debt burden, External debt, Income, Mortgages, National accounts, Private consumption

Keywords: Cash flow, Consumption, Corporate investment, Coverage ratio, Debt burden, Debt service, Fed liftoff, Fed tightening, Global, Income, Interest rate increase, Investment, Leverage: Interest Rates, Private consumption, Rate hike, WAEMULiftoff, WP

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/035
Stock No:

WPIEA2016035
ISBN:

9781498376402
ISSN:

1018-5941

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