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Do the Renminbi and Hong Kong dollar bubbles interact?

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  • Xiaojian Su
  • Cheng Peng
  • Zhike Lv
  • Chao Deng

Abstract

This paper applies the Generalized Supremum Augmented Dickey–Fuller (GSADF) approach to highlight the multiple exchange rate bubbles, and detect the interaction between Renminbi (RMB) and Hong Kong dollar (HKD) by logistic regression. The results illustrate that (I) there exists multiple bubbles in the RMB and HKD, and both shows the short‐term period bubbles in the nominal exchange rates whereas performing the long‐term period bubbles in the real exchange rates; (II) the exchange rate bubbles mainly existed during the financial crisis. The RMB bubbles occurred more in domestic financial crisis, while the HKD bubbles occurred in both domestic and international financial crisis; (III) there are interactions between bubbles in the RMB and HKD. Specifically, the bubbles in the nominal exchange rates of the RMB and HKD are reinforcing each other while the bubbles in the real exchange rates markets are mutually hedging; the nominal and real exchange rate market are mutually reinforcing regardless of the RMB or HKD. Furthermore, the strength of interactions between the RMB and HKD shows that the price of the HKD is more stable than that of the RMB.

Suggested Citation

  • Xiaojian Su & Cheng Peng & Zhike Lv & Chao Deng, 2022. "Do the Renminbi and Hong Kong dollar bubbles interact?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 312-319, January.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:1:p:312-319
    DOI: 10.1002/ijfe.2154
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