Optimum Currency Area for Mainland China and Hong Kong? Empirical Tests

Tsang, Shu-ki

doi:10.2139/ssrn.1009434

Cited by 8 publications

(11 citation statements)

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“…The results of the variance analysis and the principal decomposition exercise presented in Tables 2 and 3, consistent with the methodology of OCA research, however are mixed (Tsang, 2002b). Two methods are used, given the constraint of Chinese data: (1) variance analysis; and (2) principal decomposition exercise.…”

Section: The Operational Difficulties Of Inflation As a Target In Chinasupporting

confidence: 59%

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Inflation Targeting in China?

Tsang¹

2002

SSRN Journal

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Section: The Operational Difficulties Of Inflation As a Target In Chinasupporting

confidence: 59%

“…Such an interpretation of the results of the principal components exercise has to be set against the proviso given in Tsang (2002b), and implied by McKinnon (2001) about the two Mundell's models (1961 versus 1973a, b).…”

Section: The Operational Difficulties Of Inflation As a Target In Chinamentioning

confidence: 98%

Inflation Targeting in China?

Tsang¹

2002

SSRN Journal

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“…On financial/monetary issues, see Cheung, He and Ng (1994), Glick and Hutchison (1990), Chinn andFrankel (1994, 1995), De Brouwer (1999), Tsang (2002) and in the post-Crisis era, Kumhof (2001). In terms of real exchange rates, see most recently Cheung and Lai (1998), Chinn (2000), Fujii (2002), and Fukuda and Kano (1997).…”

Section: Introductionmentioning

confidence: 99%

“…It is also found that exchange rate variability plays a major role in determining the variability of deviations from these parity conditions. Key words: uncovered interest parity, real interest parity, purchasing power parity, exchange rates, capital mobility, market integration JEL classification: F31, F41 On financial/monetary issues, see Cheung, He and Ng (1994), Glick and Hutchison (1990), Chinn and Frankel (1994), De Brouwer (1999), Tsang (2002 and in the post-Crisis era, Kumhof (2001). In terms of real exchange rates, see most recently Cheung and Lai (1998),…”

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confidence: 99%

China, Hong Kong, and Taiwan: A quantitative assessment of real and financial integration

Cheung

Chinn

Fujii

2003

China Economic Review

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The status of real and financial integration of China, Hong Kong, and Taiwan is investigated using monthly data on one-month interbank rates, exchange rates, and prices. Specifically, the degree of integration is assessed based on the empirical validity of real interest parity, uncovered interest parity, and relative purchasing power parity. There is evidence these parity conditions tend to hold over longer periods, although they do not hold instantaneously. Overall, the magnitude of deviations from the parity conditions is shrinking over time. In particular, China and Hong Kong appear to have experienced significant increases in integration during the sample period. It is also found that exchange rate variability plays a major role in determining the variability of deviations from these parity conditions. Key words: uncovered interest parity, real interest parity, purchasing power parity, exchange rates, capital mobility, market integration JEL classification: F31, F41 On financial/monetary issues, see Cheung, He and Ng (1994), Glick and Hutchison (1990), Chinn and Frankel (1994), De Brouwer (1999), Tsang (2002 and in the post-Crisis era, Kumhof (2001). In terms of real exchange rates, see most recently Cheung and Lai (1998),Chinn (2000), Fujii (2002), andFukuda andKano (1997 The integration process between these three economies that comprise what is often termed "Greater China" is proceeding more along de facto than de jure lines. While the development among the Greater China economies has often been remarked upon, we believe that up until this point the analyses examining the strengthening of ties between these economies have been of an essentially anecdotal nature. 4 In this paper, we examine quantitative aspects of integration in the context of macroeconomic concerns and characterize the current and future scope for integration and macroeconomic management between the Greater China economies.It is known that market integration has direct implications for the effectiveness of domestic stabilization policy. Thus, a comprehensive stocktaking will allow policy makers to assess the spillover effects of macroeconomic policies among these economies, even as their combined importance in the world economy increases. To put these concerns into concrete form, One early exception is Wei and Frankel (1994), who provide an assessment of whether a Greater China trade bloc exists.4 not only do these aspects of financial market integration matter, but so too do measures of real market integration. 5The focus of this study is to examine real interest parity, uncovered interest parity, and purchasing power parity. These three parity conditions define the key links between markets and are cornerstones of models in international finance. They are closely examined and routinely used as a gauge of the degree of integration in capital, financial, and goods markets. The real interest parity condition hinges on capital mobility and whether capital flows equalize real interest rates across economies. It can be shown that t...

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“…While the notion of a currency union represents a stringent commitment by its member economies, it attracts some interest in the academic circle. For instance, studies including Bayoumi and Mauro (1999), Eichengreen and Bayoumi (1999), Lee, Park and Shin (2002), McKinnon and Schnabl (2003), Ng (2002), and Tsang (2002) found that the Asian economies are not unsuitable for a currency union. However, the differences in the stage of economic development among these economies, the lack of effective institutional arrangements, and the diverse political structures are unfavorable factors for establishing an Asian currency union.…”

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The Suitability of a Greater China Currency Union

Cheung

Yuen

2005

Pacific Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The study assesses the level of integration among the three Greater China economies (namely China, Hong Kong, and Taiwan) and examines the suitability of a Greater China currency union. Currently, the three economies have extensive trade and investment linkages. Our analyses show that these economies share common long-run and short-run cyclical variations. We also estimate the output costs of relinquishing policy autonomy to form a currency union. The estimated output losses, which depend on, for example, the method used to generate shock estimates, seem to be moderate and are likely to be less than the efficient gains derived from a currency union arrangement. Terms of use: Documents in EconStor mayJEL classification: F33, F31, F41.

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Optimum Currency Area for Mainland China and Hong Kong? Empirical Tests

Cited by 8 publications

References 10 publications

Inflation Targeting in China?

Inflation Targeting in China?

China, Hong Kong, and Taiwan: A quantitative assessment of real and financial integration

The Suitability of a Greater China Currency Union

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