Off-the-Record Target Zones: Theory with an Application to Hong Kongs Currency Board

This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band.

Financial Distress in Chinese Industry: Microeconomic, Macroeconomic and Institutional Infuences

We study the impact of both microeconomic factors and the macroeconomy on the financial distress of Chinese listed companies over a period of massive economic transition, 1995 to 2006. Based on an economic model of financial distress under the institutional setting of state protection against exit, and using our own firm-level measure of distress, we find important impacts of firm characteristics, macroeconomic instability and institutional factors on the hazard rate of financial distress. The results are robust to unobserved heterogeneity at the firm level, as well as those shared by firms in similar macroeconomic founding conditions. Comparison with related studies for other economies highlights important policy implications.

Time is Running Out: The 2°C Target and Optimal Climate Policies

The quintessence of recent natural science studies is that the 2 degrees C target can only be achieved with massive emission reductions in the next few years. The central twist of this paper is the addition of this limited time to act into a non-perpetual real options framework analysing optimal climate policy under uncertainty. The window-of-opportunity modelling setup shows that the limited time to act may spark a trend reversal in the direction of low-carbon alternatives. However, the implementation of a climate policy is evaded by high uncertainty about possible climate pathways.