Monetary operations by Hong Kong's Currency Board

Currency Boards are typically seen as demonstrating the advantages of rule-bound monetary policies with automatic responses to exchange market imbalances. We study the monetary operations conducted by Hong Kong's Currency Board, using daily data between September 1998 and December 2001. Since this regime is one-sided in that there is a commitment to sell, but not to buy, US dollars at a given rate, we estimate logit equations for dollar purchases. We show that these have shifted over time and that while the variables are statistically highly significant, the predictive power is low.