Hong Kong Model: The Revised 1990 Version

  • W. L. Chou
  • T. B. Lin


In recent years, the error correction model has gained popularity for dynamic equations in quantitative economics. It has been applied to such main stream problems as personal consumption, investment, and the demand for money.2 As the error correction process is attractive, in that it contains both levels and differences of variables and is compatible with long-run equilibrium behavior, we have introduced the error correction mechanism to the ERC econometric forecasting model of the Hong Kong economy Constructed by Lin and Chou (1985). The major changes in the model lie in the specification of private consumption, private investment in building and construction, wages, prices, and the demand for money. From the estimation results we can conclude that the introduction of the error correction mechanism has resulted in significant improvements in the accuracy of the forecast performance for such variables as the gross domestic product (GDP) and its main components, the GDP deflator, the consumer price index, wages, and the demand for money. The purpose of this article is to present the revised 1990 version of the ERC econometric forecasting model of the Hong Kong economy and to study the properties of the model as revealed by dynamic multiplier analysis for a set of policy simulations.


Gross Domestic Prod1lct Private Consumption Money Demand Real Gross Domestic Prod1lct Demand Deposit 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. [1]
    Davidson, J. E. H., D. F. Hendry, F. Srba, and S. Yeo (1978) ”Econometric Modelling of the Aggregate Time-series Relationship Between Consumers Expenditure and Income in the United Kingdom,” The Economic Journal, vol.88, pp.661–692.CrossRefGoogle Scholar
  2. [2]
    Dawson, A. (1981) ”Sargan’s Wage Equation: A Theoretical and Empirical Reconstruction,” Applied Economics, vol. 13, pp.351–363.CrossRefGoogle Scholar
  3. [3]
    Hendry, D. F. (1984) ”Econometric Modelling of House Prices in the United Kingdom,” in D. F. Hendry and K. F. Wallis eds., Econometrics and Quantitative Economics, Oxford: Basil BlackwellGoogle Scholar
  4. [4]
    Klein, L. R. (1978) ”The Supply Side,” American Economic Review, vol.68, pp.1–7.Google Scholar
  5. [5]
    Lin, Tzong-biau and Chou, W. L. (1985) ”Hong Kong Model,” in S. Ichimura and M. Ezaki eds., Econometric Models of Asian Link, Tokyo: Springer-VerlagGoogle Scholar
  6. [6]
    Rose, A. K. (1985) ”An Alternative Approach to the American Demand for Money,” Journal of Money, Credit, and Banking, vol.17, pp.439–455.CrossRefGoogle Scholar
  7. [7]
    Sargan, J. D. (1984) ”Wages and Prices in the United Kingdom: A Study in Econometric Methodology,” in D. F. Hendry and K. F. Wallis eds., Econometrics and Quantitative Economics, Oxford: Basil Blackwell.Google Scholar

Copyright information

© Springer-Verlag Tokyo 1994

Authors and Affiliations

  • W. L. Chou
    • 1
  • T. B. Lin
    • 1
  1. 1.Department of EconomicsThe Chinese UniversityHong Kong

Personalised recommendations