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: |
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.orgEmail:
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.:
- Artis, M. & Kohler, M. & Melitz, J., 1998.
"Trade and the Number of OAC's in the World,"
Economics Working Papers
eco98/16, European University Institute.
- Lafrance, Robert & St-Amant, Pierre, 1999. "Optimal Currency Areas: A Review of the Recent Literature," Working Papers 99-16, Bank of Canada.
- 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.
- 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.
- 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.
- 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, vol. 112(3), pages 429-470, September.
- 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.
- Stephen Ching & Michael B. Devereux, 2000. "Mundell Revisited: A simple approach to the Costs and Benefits of a Single Currency Area," Working Papers 092000, Hong Kong Institute for Monetary Research.
- George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
- Jacques MÃ©litz, 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.
- 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.
- 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.
- Melitz, Jacques, 1993.
"The Theory of Optimum Currency Areas, Trade Adjustment and Trade,"
CEPR Discussion Papers
847, C.E.P.R. Discussion Papers.
- Jacques MÃ©litz, 1996. "The theory of optimum currency areas, trade adjustment, and trade," Open Economies Review, Springer, vol. 7(2), pages 99-116, April.
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.