Optimum Currency Area for Mainland HCina and Hong Kong? Empirical Tests
After the political unification of Hong Kong with China, Hong Kong is supposed to function as a separate economic entity under the framework of ¡§one country, two systems¡¨. However, the increasingly close ties between the two economies, particularly in recent years, have raised the possibility of full economic integration despite political constraints, and even of monetary union as the Chinese currency progresses towards full convertibility. This paper employs the theory of optimum currency area (OCA) and adopts two techniques over a range of economic variables to test whether Mainland China and Hong Kong constitute an OCA. The historical results presented in this paper are very sceptical of a positive answer. Empirical findings based on disaggregated data show some signs of nominal and real convergence only between Hong Kong and parts of Eastern China, driven by trade. This seems to be consistent with the actual trajectory of economic integration. However, all other results, even those based on higher frequency price data, point to a lack of evidence that Hong Kong and Mainland China as a whole as yet constitute an OCA.
|Date of creation:||Sep 2002|
|Date of revision:|
|Contact details of provider:|| Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong|
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roland Vaubel, 1976.
"Real exchange-rate changes in the European community: The empirical evidence and its implications for European currency unification,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 112(3), pages 429-470, September.
- Vaubel, Roland, 1976. "Real exchange-rate changes in the European Community: The empirical evidence and its implications for European currency unification," Kiel Working Papers 39, Kiel Institute for the World Economy.
- Michael Artis & Marion Kohler & Jacques Mélitz, 1998.
"Trade and the Number of OCAs in the World,"
Open Economies Review,
Springer, vol. 9(1), pages 537-568, January.
- Lafrance, Robert & St-Amant, Pierre, 1999. "Optimal Currency Areas: A Review of the Recent Literature," Staff Working Papers 99-16, Bank of Canada.
- De Grauwe, Paul & Vanhaverbeke, Wim, 1991. "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Papers 555, C.E.P.R. Discussion Papers.
- George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
- Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August.
- Ronald I. McKinnon, 2001. "After the Crisis, The East Asian Dollar Standard Resurrected: An Interpretation of High Frequency Exchange Rate Pegging," Working Papers 042001, Hong Kong Institute for Monetary Research.
- Jacques Mélitz, 1996.
"The theory of optimum currency areas, trade adjustment, and trade,"
Open Economies Review,
Springer, vol. 7(2), pages 99-116, April.
- Melitz, Jacques, 1993. "The Theory of Optimum Currency Areas, Trade Adjustment and Trade," CEPR Discussion Papers 847, C.E.P.R. Discussion Papers.
- Stephen Ching & Michael B. Devereux, 2000.
"Mundell Revisited: A simple approach to the Costs and Benefits of a Single Currency Area,"
092000, Hong Kong Institute for Monetary Research.
- Stephen Ching & Michael B. Devereux, 2003. "Mundell Revisited: a Simple Approach to the Costs and Benefits of a Single Currency Area," Review of International Economics, Wiley Blackwell, vol. 11(4), pages 674-691, 09.
- Boltho, Andrea, 1989. "European and United States Regional Differentials: A Note," Oxford Review of Economic Policy, Oxford University Press, vol. 5(2), pages 105-15, Summer.
- Jacques Mélitz, 1995.
"A suggested reformulation of the theory of optimal currency areas,"
Open Economies Review,
Springer, vol. 6(3), pages 281-298, July.
- Melitz, Jacques, 1991. "A Suggested Reformulation of the Theory of Optimal Currency Areas," CEPR Discussion Papers 590, C.E.P.R. Discussion Papers.
- Vaubel, Roland, 1976. "Real exchange-rate changes in the European Community: The empirical evidence and its implications for European currency unification," Kiel Working Papers 39, Kiel Institute for the World Economy (IfW).
When requesting a correction, please mention this item's handle: RePEc:hkm:wpaper:162002. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR)
If references are entirely missing, you can add them using this form.