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

  • 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)

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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File URL: http://hdl.handle.net/10.1002/ijfe.264
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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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