Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:6: Is China an Optimum Currency Area?

Hans Byström (), Karin Olofsdotter () and Lars Söderström ()
Additional contact information
Hans Byström: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Karin Olofsdotter: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Lars Söderström: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This paper analyzes regional differences across Chinese regions, employing an optimum currency area framework. Empirically, we consider the cross-sectional correlation measure of Solnik & Roulet (2000) when examining data on GDP, trade, inflation and regional budget between 1991 and 2001. Our preliminary results suggest that China probably is more of an optimum currency area than first expected. It is debatable, though, whether Hong Kong and Macao are appropriate as candidates. The results also indicate that there might be other constellations of regions that could be closer to an optimum currency area than the current Yuan area.

Keywords: China; optimum currency area; regional developments; cross-sectional correlation

JEL-codes: C32; F33; O53

34 pages, January 25, 2005

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