The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper investigates the synchronization of Hong Kong SAR's economic growth with mainland China and the United States. This paper identifies trends of economic growth based on the permanent income hypothesis. Specifically, the paper confirms whether real
consumption in Hong Kong SAR and mainland China satisfy the permanent income
hypothesis, at least in a weak form. It then identifies the permanent and transitory components
of income of each economy using a simple state-space model. It uses structural vector
autoregression models to analyze how permanent and transitory shocks originating from
mainland China and the United States affect the Hong Kong economy, and how such
influences evolve over time. The paper's main findings suggest that transitory shocks from the
United States remain a major driving force behind Hong Kong SAR's business cycle
fluctuations. On the other hand, permanent shocks from mainland China have a larger impact
on Hong Kong SAR's trend growth.