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China, Hong Kong, and Taiwan: A Quantitative Assessment of Real and Financial Integration

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Author Info

  • Yin-wong Cheung

    (university of California, Santa Cruz)

  • Menzie D. Chinn

    (University of California, Santa Cruz and NBER)

  • Eiji Fujii

    (University of Tsukuba, Japan)

Abstract

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.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 152003.

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Length: 30 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:hkm:wpaper:152003

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Keywords: uncovered interest parity; real interest parity; purchasing power parity; exchange rates; capital mobility; market integration;

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References

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Citations

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Cited by:
  1. Yin-Wong Cheung & Xingwang Qian, 2010. "Capital Flight: China's Experience," CESifo Working Paper Series 2931, CESifo Group Munich.
  2. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2006. "The Chinese economies in global context: The integration process and its determinants," Journal of the Japanese and International Economies, Elsevier, vol. 20(1), pages 128-153, March.
  3. Kin‐Yip Ho & Zhaoyong Zhang, 2012. "Dynamic Linkages among Financial Markets in the Greater China Region: A Multivariate Asymmetric Approach," The World Economy, Wiley Blackwell, vol. 35(4), pages 500-523, 04.
  4. Gerlach-Kristen, Petra, 2009. "Business cycle and inflation synchronisation in Mainland China and Hong Kong," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(3), pages 404-418, June.
  5. T. K. Jayaraman & Huay-Huay Lee & Hock-Ann Lee, 2006. "Regional Economic Integration in the Pacific: An Empirical Study," Global Economic Review, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(2), pages 177-192.
  6. Chow, Hwee Kwan, 2010. "Asian Tigers' Choices: An Overview," ADBI Working Papers, Asian Development Bank Institute 238, Asian Development Bank Institute.
  7. Lee, Chin, 2010. "Purchasing power parity and free trade area," MPRA Paper 40431, University Library of Munich, Germany.
  8. Henry Kim & Soyoung Kim & Yunjong Wang, 2005. "International Capital Flows and Boom-Bust Cycles in the Asia Pacific Region," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0506, Department of Economics, Tufts University.
  9. Zohreh Shirani Fakhr & Seyed Komail Tayebi, 2009. "Determinants of Financial Integration in the East Asia-Pacific Region," Iranian Economic Review, Economics faculty of Tehran university, Economics faculty of Tehran university, vol. 14(1), pages 155-173, spring.
  10. Alex Luiz Ferreira, 2004. "Are Real Interest Differentials Caused by Frictions in Goods or Assets Markets, Real or Nominal Shocks?," Studies in Economics, Department of Economics, University of Kent 0407, Department of Economics, University of Kent.
  11. Maveyraud-Tricoire, Samuel & Rous, Philippe, 2009. "RIP and the shift toward a monetary union: Looking for a "euro effect" by a structural break analysis with panel data," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 19(2), pages 336-350, April.
  12. Chan, Tze-Haw, 2011. "A structural modeling of exchange rate, prices and interest rates between Malaysia-China in the liberalization era," MPRA Paper 32955, University Library of Munich, Germany.
  13. Yeh, Kuo-chun & Ho, Tai-kuang, 2012. "Magnitude and volatility of Taiwan's net foreign assets against Mainland China: 1981–2009," China Economic Review, Elsevier, Elsevier, vol. 23(3), pages 720-728.
  14. James Laurenceson & Kam Ki Tang, . "Estimating China�s de-facto capital account convertibility," EAERG Discussion Paper Series, School of Economics, University of Queensland, Australia 0205, School of Economics, University of Queensland, Australia.
  15. Ramiah, Vikash & Cheng, Ka Yeung & Orriols, Julien & Naughton, Tony & Hallahan, Terrence, 2011. "Contrarian investment strategies work better for dually-traded stocks: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 19(1), pages 140-156, January.
  16. Hwee Kwan Chow, 2010. "Asian Tigers’ Choices : An Overview," Trade Working Papers 21879, East Asian Bureau of Economic Research.
  17. 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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