When the Asian financial turmoil started in Thailand in July 1997 and spread to other countries in the region, Hong Kong, an important global and regional financial center, was not immune. The effects of the Asian Crisis were similar throughout the affected countries: a substantial downward pressure on stock markets and real estate, an upsurge in interest rates, rising inflation and rising unemployment. Although Hong Kong did not experience sharply depreciated and highly volatile exchange rates, it did experience a downturn in its economy. The downturn was caused by both endogenous and exogenous conditions. Endogenous factors included asset bubbles and a linked exchange rate policy. Exogenous factors involved unstable currencies in neighboring countries. Through analyzing economic conditions in Hong Kong during the Asian Crisis, we can determine which policies, both endogenous and exogenous, can prepare Hong Kong to respond to future financial crises more effectively and efficiently.
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