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Exploring the Case for Monetary Integration between the Chinese Mainland and Hong Kong

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  • Tony Cavoli
  • Ramkishen S. Rajan

Abstract

This paper presents an empirical investigation on an important policy issue, namely, whether there is any evidence supporting monetary integration between the Chinese mainland and Hong Kong. We follow two lines of inquiry. First, we present a series of simple tests to find the extent to which trade and/or financial linkages exist between the two regions. Second, we use simple inflation and output differentials and structural VAR techniques to test for the degree of business cycle synchronization between the two regions. The results indicate that there is evidence supporting the existence of trade linkages and that there is also support for the possible synchronization of business cycles. We discuss the implications of this for monetary integration between Hong Kong and the mainland.

Suggested Citation

  • Tony Cavoli & Ramkishen S. Rajan, 2007. "Exploring the Case for Monetary Integration between the Chinese Mainland and Hong Kong," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 15(4), pages 17-34, July.
  • Handle: RePEc:bla:chinae:v:15:y:2007:i:4:p:17-34
    DOI: 10.1111/j.1749-124X.2007.00073.x
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    File URL: https://doi.org/10.1111/j.1749-124X.2007.00073.x
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    References listed on IDEAS

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    1. Takeuchi, Takayuki, 2006. "Integration under 'One Country, Two Systems' - The Case of Mainland China and Hong Kong-," IDE Discussion Papers 70, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Shu-ki Tsang, 2002. "From "One Country, Two Systems" to Monetary Integration?," Working Papers 152002, Hong Kong Institute for Monetary Research.
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    Cited by:

    1. Andrew Hughes Hallett & Christian Richter, 2011. "Trans-Pacific Economic Relations and US-China Business Cycles : Convergence within Asia versus US Economic Leadership," Development Economics Working Papers 23244, East Asian Bureau of Economic Research.

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