Foreign Exchange Rate and Economic Growth: The Case of Hong Kong

John Woods, Brian Hausler, Sara Dunning, Jie Yan, Hengfu Zhang, Youngwoo Kim, Derrick Beck, Gena Jamison, John Zoboli, Jay Waite, Mark Donohue, Kevin Carter

Abstract


The relationship between the exchange rate and the real GDP of Hong Kong in the long period from 1955 to 2015 is investigated using a structural VAR model. The mutual effect of the two variables is studied in three periods: The results indicate that there is no obvious relationship between the exchange rate and real GDP before Hong Kong’s economy booming. However, a significant positive correlation is found in the sample of 1975–1998, which is associated with the output increases. The direction between the exchange rate and real GDP becomes negative after 1998. In addition, based on Granger causality test, we found the exchange rate could Granger causes GDP after 1975, but there is no Granger causality connection between the two variables before 1975.


Keywords


Hong Kong Dollar Exchange Rate; Economic Growth; Structural VAR Model.

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