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Exploring the Case for Monetary Integration between the Chinese Mainland and Hong Kong
Author(s) -
Cavoli Tony,
Rajan Ramkishen S.
Publication year - 2007
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2007.00073.x
Subject(s) - mainland china , inflation (cosmology) , mainland , financial integration , economics , business cycle , monetary policy , simple (philosophy) , synchronization (alternating current) , empirical evidence , economic integration , international economics , monetary economics , macroeconomics , financial market , geography , finance , china , computer science , archaeology , computer network , philosophy , channel (broadcasting) , physics , epistemology , theoretical physics
This paper presents an empirical investigation on an important policy issue, namely, whether there is any evidence supporting monetary integration between the Chinese mainland and Hong Kong. We follow two lines of inquiry. First, we present a series of simple tests to find the extent to which trade and/or financial linkages exist between the two regions. Second, we use simple inflation and output differentials and structural VAR techniques to test for the degree of business cycle synchronization between the two regions. The results indicate that there is evidence supporting the existence of trade linkages and that there is also support for the possible synchronization of business cycles. We discuss the implications of this for monetary integration between Hong Kong and the mainland.
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