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Dimensions of financial integration in Greater China: money markets, banks and policy effects

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  • Yin-Wong Cheung

    (University of California-Santa Cruz, USA)

  • Menzie D. Chinn

    (University of Wisconsin-Madison, and National Bureau of Economic Research, USA)

  • Eiji Fujii

    (University of Tsukuba, Japan)

Abstract

The financial linkages between the People's Republic of China (hereafter 'China') and the other Greater China economies of Hong Kong and Taiwan are assessed, and compared against those of China with Singapore, Japan and the United States. For both sets of links, there is evidence that ex post uncovered interest parity tends to hold over longer periods, and the magnitude of the parity deviations is shrinking over time. The deviations depend upon the extent of capital controls, and in certain cases, exchange rate volatility. However, while the money markets of China are increasingly linked to money markets in the rest of the world, our empirical results suggest that the banking sector-the main source of capital for Chinese firms-remains insulated. Copyright © 2005 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 10 (2005)
Issue (Month): 2 ()
Pages: 117-132

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Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:2:p:117-132

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  1. Dooley, Michael P & Isard, Peter, 1980. "Capital Controls, Political Risk, and Deviations from Interest-Rate Parity," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 370-84, April.
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Cited by:
  1. Johansson, Anders C., 2009. "China'S Financial Market Integration With The World," Working Paper Series 2009-10, China Economic Research Center, Stockholm School of Economics.
  2. Glick, Reuven & Hutchison, Michael, 2013. "China's financial linkages with Asia and the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 186-206.
  3. Liew, Venus Khim-Sen & Ling, Tai-Hu, 2008. "Real interest rate parity: evidence from East Asian economies relative to China," MPRA Paper 7291, University Library of Munich, Germany.
  4. Girardin, Eric & Liu, Zhenya, 2007. "The financial integration of China: New evidence on temporally aggregated data for the A-share market," China Economic Review, Elsevier, vol. 18(3), pages 354-371.
  5. Chan, Tze-Haw & Baharumshah, Ahmad Zubaidi, 2012. "Financial Integration between China and Asia Pacific Trading Partners: Parities Evidence from the First- and Second-generation Panel Tests," MPRA Paper 37801, University Library of Munich, Germany.

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