Adjusting to the Link
Adjusting to the Link
July–August 1985
This chapter provides an overview of how Hong Kong's economy was adjusting to the linked rate system. First, it addresses the adjustment of prices in Hong Kong relative to prices in the US and the Organisation for Economic Co-operation and Development (OECD) as a whole. It then discusses how Hong Kong's balance of payments was adjusting, and argues that larger current account surpluses in the wake of the currency stabilization were almost certainly accompanied by greater capital outflows. It also discusses changes in the money markets, specifically how and to what degree interest rates in Hong Kong and the US were converging. Finally, it discusses the increases in the money multipliers as a result of the increase in confidence following the stabilisation of the currency in October 1983.
Keywords: linked rate system, prices, OECD, currency stabilization, capital outflows, money markets, interest rates
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