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Do Hong Kong SAR and China Constitute An Optimal Currency Area? An Empirical Test of the Generalized Purchasing Power Parity Hypothesis

The paper explores the behavior of the long-run real exchange rate (RER) of Hong Kong SAR and China by testing the generalized-purchasing power parity hypothesis (G-PPP). The hypothesis argues that if the fundamental variables determining RERs are sufficiently integrated, as in a currency area, the...

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Bibliographic Details
Main Author: Liang, Hong
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1999
Series:IMF Working Papers
Subjects:
Government And The Monetary System
Payment Systems
International Monetary Arrangements And Institutions
Economic Integration
Monetary Economics
Currency; Foreign Exchange
Regimes
Purchasing Power Parity
Financial Aspects Of Economic Integration
Open Economy Macroeconomics
Exports And Imports
International Economics
Money
Foreign Exchange
Standards
Currencies
Monetary Systems
Real Exchange Rates
Exchange Rates
Monetary Unions
Money And Monetary Policy
Hong Kong Special Administrative Region, People's Republic Of China
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:The paper explores the behavior of the long-run real exchange rate (RER) of Hong Kong SAR and China by testing the generalized-purchasing power parity hypothesis (G-PPP). The hypothesis argues that if the fundamental variables determining RERs are sufficiently integrated, as in a currency area, the RERs should share common trends. The findings of this study suggest (1) at present, Hong Kong SAR and China do not satisfy the conditions necessary for forming an optimal currency area by themselves; (2) when Japan and the United States are added to the group, common trends can be found; and (3) the long-run elasticity between the RERs of Hong Kong SAR and China is negative
Physical Description:17 pages
ISBN:9781451850185

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