HONG KONG'S INDETERMINACY PUZZLE: INSTITUTIONALIST AND ECONOMETRIC APPROACHES.

During the free-issue regime (1974-1983), Hong Kong's money supply, price level and exchange rates were wholly governed by market forces. The system did not seem to have any nominal anchor. Theoretically its price level was indeterminate, engendering what is called an indeterminacy puzzle. The paper elaborates on the concept of price level indeterminacy and undertakes the question of empirical determination of the price level indeterminacy during the freeissue regime. The empirical investigation employs two distinct approaches - institutionalist and econometric. The results of the two approaches indicate the necessity of a broader approach to historical analyses. The paper also informs us about the relationship among money supply, price level and exchange rate in a regime of fiat money without a central bank. [ABSTRACT FROM AUTHOR]