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

  • Yin-Wong Cheung
  • Menzie D. Chinn
  • Eiji Fujii

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 CESifo Group Munich in its series CESifo Working Paper Series with number 851.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_851
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  1. Jeffrey A. Frankel & Menzie D. Chinn, 1993. "Financial links around the Pacific Rim, 1982-1992," Pacific Basin Working Paper Series 93-08, Federal Reserve Bank of San Francisco.
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  12. Frederic S. Mishkin, 1982. "Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions," NBER Working Papers 1048, National Bureau of Economic Research, Inc.
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  25. repec:cup:cbooks:9780521651486 is not listed on IDEAS
  26. Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
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  29. Holmes, Mark J., 2002. "Does long-run real interest parity hold among EU countries? Some new panel data evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(4), pages 733-746.
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