Exploring the Case for Monetary Integration between the Chinese Mainland and Hong Kong

18 Pages Posted: 31 Aug 2007

See all articles by Tony Cavoli

Tony Cavoli

University of Adelaide

Ramkishen S. Rajan

George Mason University - School of Policy, Government, and International Affairs

Abstract

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.

Suggested Citation

Cavoli, Tony and Rajan, Ramkishen S., Exploring the Case for Monetary Integration between the Chinese Mainland and Hong Kong. China & World Economy, Vol. 15, No. 4, pp. 17-34, July-August 2007, Available at SSRN: https://ssrn.com/abstract=1009721 or http://dx.doi.org/10.1111/j.1749-124X.2007.00073.x

Tony Cavoli (Contact Author)

University of Adelaide ( email )

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Ramkishen S. Rajan

George Mason University - School of Policy, Government, and International Affairs ( email )

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Arlington, VA 22201
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