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

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Listed author(s):
  • Cheung, Yin-Wong
  • Chinn, Menzie
  • Fujii, Eiji

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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Paper provided by Center for International Economics, UC Santa Cruz in its series Santa Cruz Center for International Economics, Working Paper Series with number qt01g0h0q2.

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Date of creation: 01 Jun 2003
Handle: RePEc:cdl:scciec:qt01g0h0q2
Contact details of provider: Web page: http://www.escholarship.org/repec/sccie/

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

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Find related papers by JEL classification:
  • F31 - International Economics - - International Finance - - - Foreign Exchange
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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