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views or policies of the Asian Development Bank Institute (ADBI), the

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Comments on The Impact of US Monetary

Policy and Other External Shocks on
the Hong Kong Economy:
A Factor-augmented VAR Approach
Nao Sudo
Bank of Japan

19th Annual Conference 2016

Implications of Ultra-Low and Negative Interest
Rates for Asia
Asian Development Bank Institute, 2 December 2016
The views expressed are my own and not necessarily those of the BOJ
 What is this paper about?
Transmission of monetary policy overseas +
Chinese output on HK economy.

When US, EU, Japan, or Mainland China sneezes,

does HK catch cold?

Global implications of exit of large countries

from the Global liquidity trap.

Can ECB and BOJ be the substitute of FED as the

global liquidity provider?
 What does this paper do?
Empirically studies impacts of four foreign
demand variables on HK economy, using
FAVAR.
Estimated results, in terms of GDP and
unemployment rate, show
A change in demand Effects on HK
overseas
Sneeze in US

Sneeze in EU

Sneeze in JPN

Sneeze in China
Comments
 Summary
Interesting topic that has potential to address several
important questions, in particular regarding
transmission, such as follows.
(1) How does bilateral trade relationship with HK
matter?
(2) How does cross-border interbank linkages matter?
- Do all MP shocks act as demand shocks?
(3) Do QE or QQE of ECB and BOJ quantitatively offset
effect of FEDs tapering?
-- It looks, however, the current paper is not ready to
answer to those questions due to econometric issues.
 1. Effects of MP vs MP shocks (1)
US MP shocks in this paper are variations of of
the US that are not explained by , , and
Chinese GDP.
Other portion of endogenous variations in are still
included in their US MP shocks.
Unable to talk about cause and consequence.
Interpretation of estimated numbers is hard.
Demand Decline in Europe

Reduction of demand for HK goods

 1. Effects of MP vs MP shocks (2)
and overshoot immediately after the initial
movement, which is hard to interpret.

IRF of to own shock conditional on domestic

variables (left: Wu and Xia, 2016, right: Miyao, 2002, both are monthly).
 2. Cholesky decomposition
The current Cholesky ordering of R implicitly assumes
money markets in US, EU, and JPN, adjust to shocks
more slowly than does Chinese GDP.

Market variables
 3. Shadow rates
Good indicators for monetary policy stances during the
period of unconventional policy are essential. Shadow
rates are useful, but there is often disagreement
among shadow rates measured in different methods.
Some people use B/S of the central bank as policy
instruments.
%
Developments of two shadow rates in the U.S.
6.00
Wu-Xia
4.00
Krippner

2.00

0.00

-2.00

-4.00

-6.00
2008 2009 2010 2011 2012 2013 2014 2015
 4. or ?
Some existing works report that when US sneezes,
HK sneezes as well which contrasts with the current
study.
Mackowiak (2006, 2007) discusses that there are two
opposing effects (trade channel vs interest rate
channel) in transmission of MP shocks overseas.
Shadowed portion indicates
proportion (%) of countries
whose production respond
negatively to positive shocks to
US MP, in G7, Emerging, Latin,
and Asia for 1990s and 2000s
(Fukuda, et al. 2012). HK also
responds negatively to the
shocks.
Thank you!