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Rational Expectations and Inflation$
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Thomas J. Sargent

Print publication date: 2013

Print ISBN-13: 9780691158709

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691158709.001.0001

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Speculations about the Speculation against the Hong Kong Dollar

Speculations about the Speculation against the Hong Kong Dollar

(p.211) 7 Speculations about the Speculation against the Hong Kong Dollar
Rational Expectations and Inflation

David T. Beers

Neil Wallace

Princeton University Press

This chapter examines the recent substantial depreciation of the Hong Kong dollar. From 1974 until October 1983, Hong Kong's officially professed monetary policy allowed both the quantity and the exchange value of Hong Kong currency to be determined by market forces (or to float). Between mid-1980 and October 1983, when the government announced a new policy, the U.S. dollar value of the Hong Kong dollar fell about 33 percent. During that period, there also occurred substantial declines (even in terms of local currency) in all the value of assets located in Hong Kong—Hong Kong real estate and common stock in Hong Kong companies. The chapter first provides an overview of Hong Kong's monetary system before discussing its official float policy. It also considers the options available to the Hong Kong government if it were to have pegged the exchange rate for its currency to one or several foreign currencies.

Keywords:   depreciation, Hong Kong dollar, monetary policy, Hong Kong, real estate, common stock, float policy, exchange rate

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