Economic Letters

24 December 2019

• Trading activities in the private residential property markets of Hong Kong and Singapore (PDF)
  Clara Liu
  This article presents some stylised facts on trading activities in the private residential property markets of Hong Kong and Singapore in recent years. The transaction volumes of private residential property dropped notably after several rounds of demand-side management and macro-prudential measures were implemented by the two governments. Relevant stamp duty statistics indicated that various demand-side management measures have yielded their intended effects of reducing speculative, non-local and investment demand.

11 October 2019

• Effect of initial public offerings on short-term interbank rates (PDF)
  Cindy Keung
  This note, based on market data from 2015 to 2018, analyses the effects of initial public offerings (IPO) on short-term interbank interest rates in Hong Kong. The analysis indicates that IPO activities did push up 1-week and 2-week HIBORs during the entire subscription period, yet their effect would only be statistically significant when the locked-up capital of IPOs reaches the threshold of 0.6 times the Aggregate Balance. Apart from that, the movements of 1-week and 2-week HIBORs are also affected by other factors, including lagged LIBORs and systematic funding needs at month-end and year-end.

20 September 2019

• Introduction to the concept of competitiveness (PDF)
  Matthew Chan
  Economic competitiveness is an important and widely discussed, but at the same time vaguely defined topic with varying views adopted by different parties. This article presents different views on competitiveness by academics and government agencies as well as international research institutes. Regardless of their views, competitiveness is generally agreed to be closely related to productivity, which in turn is a key component of an economy's well-being. The evolution of this concept over time also reminds us that it is ever-changing, and it remains difficult to conclude with a concrete definition.

9 August 2019

• Elderly employment: latest developments in Hong Kong and policies in international perspective (PDF)
  David Chan and David Yip
  Although the elderly labour force participation rate in Hong Kong has soared over the past decade, it is still relatively low from an international perspective, and hence could have room to increase further. This article examines the relevant trends and more recent policies to encourage able and willing elders to work longer in Hong Kong and selected economies, suggesting that a multi-pronged approach is generally adopted by the governments to promote elderly employment, including strengthening incentives, tackling barriers on the side of employers and improving elders' employability.

19 July 2019

• Measuring the stock of human capital in Hong Kong (PDF)
  Ho Chi Pui
  This article constructs two types of human capital indices for Hong Kong: one based on average years of schooling and another based on estimated lifetime income. The indices use General Household Survey data on age, gender, education attainment and income from 1993Q1 to 2019Q1. The lifetime income index has grown faster than the average years of schooling index over the sample period. Lastly, this article discusses the strengths and weaknesses of each approach.

11 July 2019

• Composite economic indicators in Hong Kong (PDF)
  Ho Chi Pui
  This article evaluates three approaches to construct composite economic indicators: the OECD/Conference Board approach, the common factor approach and the artificial neural network approach. By design, a composite economic indicator constructed by the artificial neural network approach performs the best in detecting recessions and tracking growth cycles, with a lead time of about 4-5 months. However in practice not all this lead time can be exploited to provide early warnings as 3-4 months are required to confirm a recession signal (by the 3-month rule or the 4/7 rule). The OECD/Conference Board CEI and Neural Network CEI are also helpful for improving the accuracy of real GDP forecasts.

28 June 2019

• Stylised facts on business cycles in Hong Kong (PDF)
  Ho Chi Pui
  This article explores the stylised facts of Hong Kong's business cycles. Cyclical components of the economic time series are obtained through X13-ARIMA deseasonalisation and HP filter detrending and are analysed in terms of their cyclicality and lead-lag relationship with the cyclical components of real GDP. The Hang Seng Index, hotel occupancy rate, number of S&P agreements for residential building units, effective exchange rate index, air cargo throughput, and number of average daily cross-boundary vehicle movements are identified as leading economic indicators in Hong Kong. Generally speaking, the business cycles in Hong Kong share similar properties as those in the United States.

11 June 2019

• An equivalence scale for Hong Kong (PDF)
  James P Vere
  This article presents estimates of an equivalence scale for Hong Kong with consumption data from the 2014/15 Household Expenditure Survey (HES). Based on these estimates, international equivalence scales such as the modified OECD scale and the square root scale appear to overstate the degree of economies of scale in local household consumption. An exponential scale with parameter 0.75 (N^0.75, where N is the number of household members) would fit the observed data more closely.

30 May 2019

• Quantitative analysis of wealth effects on private consumption expenditure in Hong Kong (PDF)
  Simon Lo
  This note, based on data from 1997Q2 to 2018Q4, uses econometric methods to estimate the magnitude of the wealth effects from property and equity markets in Hong Kong. Specifically, a 10% quarter-to-quarter increase in real property wealth at an aggregate level would lead to around a 1.1%-1.2% quarter-to-quarter boost in private consumption expenditure (PCE), whereas a 10% quarter-to-quarter increase in real stock market wealth would boost PCE by a smaller extent, by around 0.5%. These results are generally consistent with the findings from previous empirical studies for Hong Kong.

20 March 2019

• The effect of the Renminbi to Hong Kong Dollar real exchange rate on Mainland arrivals to Hong Kong (PDF)
  Cally Choi
  The appreciation of the real Renminbi (RMB) exchange rate against the Hong Kong Dollar (HKD) is often expected to increase Mainland arrivals to Hong Kong in subsequent periods. This letter finds that the travel decisions of same-day Mainland visitors, whose main activity is shopping during their short stays in Hong Kong, are more responsive to changes in the real RMB to HKD exchange rate than those of overnight visitors. An even more important factor, however, is income growth, which is the main contributor to the increase in Mainland arrivals to Hong Kong over the past 13 years.

13 March 2019

• A simple financial conditions index for Hong Kong (PDF)
  Kent Yau
  This article proposes a simple financial conditions index (FCI) that comprises five finance-related indicators as a tool for quick assessment of Hong Kong's overall financial conditions. Apart from discussing the construction of the index, the article also observes that the proposed FCI is able to highlight the exceptionally tight financial conditions in Hong Kong during the Asian Financial Crisis and Global Financial Tsunami, and to forewarn against some of the major economic and stock market downturns in the past two decades. Several technical caveats for the FCI's potential users would be raised in the article as well.

28 January 2019

• Population ageing trend of Hong Kong (PDF)
  Kelvin Wong and Matthew Yeung
  With lower fertility and longer life expectancy, population ageing is a global issue, yet the pace of our population ageing will be more pronounced in the coming twenty years as compared to other developed economies such as Japan. This article analyses the salient characteristics of population ageing in Hong Kong. With reference to overseas experience, three possible mechanisms (shrinking labour supply, lower savings rates, and government expenditures tilted towards welfare and health) are discussed through which the ageing process might pose a drag on our potential economic growth.

3 January 2019

• The relationship between the cross-correlation of individual stock returns and the return of the Hong Kong stock market (PDF)
  Cindy Keung
  It has been well documented that the cross-correlation of a portfolio of stock returns is generally higher during bear markets than in bull markets. To verify this conclusion using evidence from Hong Kong stock market, around 21 years of daily closing prices of the 22 Hang Seng Index constituent stocks were collected and analysed. The empirical evidence suggests that below-average market returns tend to go hand in hand with a higher average cross-correlation of individual stock returns.