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on China |
| By: | Fang Cai; Hyunsoo Joo; Zhiwei Zhang |
| Abstract: | This paper utilizes a unique high-frequency database to measure how exchange rates in nine emerging markets react to macroeconomic news in the U.S. and domestic economies from 2000 to 2006. We find that major U.S. macroeconomic news have a strong impact on the returns and volatilities of emerging market exchange rates, but many domestic news do not. Emerging market currencies have become more sensitive to U.S. news in recent years. We also find that market sentiment could sway the impact of news on these currencies systematically, as good (bad) news seems to matter more when optimism (pessimism) prevails. Market uncertainty also interacts with macroeconomic news in a statistically significant way, but its role varies across currencies and news. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:973&r=cna |
| By: | Matthew S. Yiu (Research Department, Hong Kong Monetary Authority); Alex Ho (Research Department, Hong Kong Monetary Authority); Lu Jin (Research Department, Hong Kong Monetary Authority) |
| Abstract: | This study adopts an econometric approach to develop an early warning system of the vulnerability in the banking system and currency markets for the 11 EMEAP economies over the period from1990 to 2008. We identify a set of leading indicators of banking distress and currency pressure and investigate the causal and contemporaneous linkages between them by using separate panel probit models and a simultaneous probit equation system. Asset-price misalignments, default risk of commercial banks and the non-financial corporate sector, and growth of real credit to the private sector are found to be significant leading indicators for both banking distress and currency pressure. Economic growth, inflation and the ratio of short-term external debt to international reserves are found to be important determinants of banking distress, whereas growth of M2 relative to international reserves, total trade balance over GDP, real effective exchange rate over-valuation and trade integration with China are identified to be crucial indicators of currency pressure. Currency market pressure is shown to have strong leading and contemporaneous impacts on banking distress for the EMEAP economies but not vice versa. These findings imply that the policy measures aimed at sustaining exchange rate stability will have the additional benefit of lowering the likelihood of banking distress in the region. Lastly, China is found to play a stabilising role in the region, i.e. the greater the trade with China, the lower the chance of experiencing currency pressure. |
| Keywords: | Banking distress, Currency crises, Twin crises, Asia Pacific economies, econometric model |
| JEL: | E44 F31 F42 F47 G21 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0908&r=cna |
| By: | Ying , Fang (BOFIT); Yang , Zhao (BOFIT) |
| Abstract: | This paper estimates the effect of institutions on economic performance using cross-city data from China. We argue that China's ongoing reforms are part of a long and circuitous historical transition from antiquity to modernity, which started about 150 years ago. Learning from Western countries has been a central aspect of this historical process. The West had a laThis paper estimates the effect of institutions on economic performance using cross-city data from China. We argue that China's ongoing reforms are part of a long and circuitous historical transition from antiquity to modernity, which started about 150 years ago. Learning from Western countries has been a central aspect of this historical process. The West had a large influence on the early stage of this transition, which has persisted to current reforms. This study uses the enrollment in Christian missionary lower primary schools in China in 1919 as an instrument for present institutions. Employing a two-stage least squares method, we find that the effect of institutions on economic performance in China is positive and significant. The results are robust according to various tests including additional controls, such as geographic factors and government policy-related variables. |
| Keywords: | institutions; christian; geography; policy |
| JEL: | O11 O53 P16 P51 |
| Date: | 2009–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2009_009&r=cna |
| By: | Guonan Ma; Zhou Haiwen |
| Abstract: | China’s emergence as a major player in world trade is well known, but its rising role in global finance is perhaps underappreciated. China is the second largest creditor in the world today, with a net creditor position of exceeding 30% of GDP in 2007. In this paper, we test the importance of growth differential, demographics, government debt, financial depth and the exchange rate in shaping China’s net foreign asset position. Our findings highlight the sharp fall in youth dependency as one key driver behind China’s puzzlingly large net lender position and also confirm the neoclassical prediction that faster growth attracts more capital inflows. Looking ahead, our findings also suggest that China is unlikely to turn into a meaningful net debtor nation over the next two decades. Moreover, we project that, as China engages in increased cross-border asset trade, its gross foreign assets and liabilities could triple in 10 years. While adjustments in China’s net foreign asset position are expected to be gradual and may thus facilitate its capital account opening, increasing exposure to external shocks and growing interactions with the rest of the world may present challenges both to China and to the global financial system. |
| Keywords: | international investment position, external balance sheet, current account balance, financial integration |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:286&r=cna |
| By: | Dong He (Research Department, Hong Kong Monetary Authority); Zhiwei Zhang (Research Department, Hong Kong Monetary Authority); Honglin Wang (Research Department, Hong Kong Monetary Authority) |
| Abstract: | This paper studies how financial markets in the US and Mainland China affected equity, money and foreign exchange markets in Hong Kong on daily basis during the current financial crisis, and how these financial linkages have changed compared with the experience in 2001. In the equity markets, the influence of the Mainland on Hong Kong has increased substantially in the current financial crisis, but it is still less important than that of the US. In the money market, correlation between HIBOR and LIBOR has picked up from the low levels observed during the tranquil period before the crisis, to almost the same level of correlation as observed during the IT bubble burst. In the foreign exchange market, the daily movements of the Hong Kong dollar/US dollar exchange rate have been rather small and mainly influenced by the short-term interest rates. Fund flows in different directions might have neutralised the impact of other markets on the foreign exchange market. A broad interpretation of these findings is that Hong Kong financial markets appear to be more aligned with the US markets in turbulent times, but relatively more integrated with the Mainland markets during the tranquil periods. |
| Keywords: | Financial markets interactions, Financial crisis |
| JEL: | E44 F36 C22 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:hkg:wpaper:0910&r=cna |