The credibility of Hong Kong's currency board system: looking through the prism of MS‐VAR models with time‐varying transition probabilities


This paper employs a Markov regime‐switching VAR model to describe and analyse the time‐varying credibility of Hong Kong’s currency board system. The endogenously estimated discrete regime shifts are made dependent on macroeconomic fundamentals. This enables us to determine which changes in macroeconomic variables can trigger switches between the low and high credibility regimes. We carry out extensive testing to search for the most appropriate specification of the Markov regime‐switching model. We find strong evidence of regime switching behaviour that portrays the time‐varying nature of credibility in the historical data.

Oxford Bulletin of Economics and Statistics, 78: 895-914
Boris Blagov
Boris Blagov

My research area is applied Macroeconomics, particularly using cutting edge mathematical models to analyse economic relationships and create better forecasts.