IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v27y2022i1p312-319.html
   My bibliography  Save this article

Do the Renminbi and Hong Kong dollar bubbles interact?

Author

Listed:
  • Xiaojian Su
  • Cheng Peng
  • Zhike Lv
  • Chao Deng

Abstract

This paper applies the Generalized Supremum Augmented Dickey–Fuller (GSADF) approach to highlight the multiple exchange rate bubbles, and detect the interaction between Renminbi (RMB) and Hong Kong dollar (HKD) by logistic regression. The results illustrate that (I) there exists multiple bubbles in the RMB and HKD, and both shows the short‐term period bubbles in the nominal exchange rates whereas performing the long‐term period bubbles in the real exchange rates; (II) the exchange rate bubbles mainly existed during the financial crisis. The RMB bubbles occurred more in domestic financial crisis, while the HKD bubbles occurred in both domestic and international financial crisis; (III) there are interactions between bubbles in the RMB and HKD. Specifically, the bubbles in the nominal exchange rates of the RMB and HKD are reinforcing each other while the bubbles in the real exchange rates markets are mutually hedging; the nominal and real exchange rate market are mutually reinforcing regardless of the RMB or HKD. Furthermore, the strength of interactions between the RMB and HKD shows that the price of the HKD is more stable than that of the RMB.

Suggested Citation

  • Xiaojian Su & Cheng Peng & Zhike Lv & Chao Deng, 2022. "Do the Renminbi and Hong Kong dollar bubbles interact?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 312-319, January.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:1:p:312-319
    DOI: 10.1002/ijfe.2154
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.2154
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.2154?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Cheung, Yin-Wong & Chinn, Menzie David & Fujii, Eiji, 2003. "China, Hong Kong, and Taiwan: A Quantitative Assessment of Real and Financial Integration," Santa Cruz Department of Economics, Working Paper Series qt13d9m8jv, Department of Economics, UC Santa Cruz.
    2. Peter C. B. Phillips & Yangru Wu & Jun Yu, 2011. "EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 201-226, February.
    3. Coricelli, Fabrizio & Jazbec, Bostjan, 2004. "Real exchange rate dynamics in transition economies," Structural Change and Economic Dynamics, Elsevier, vol. 15(1), pages 83-100, March.
    4. Boubakri, Salem & Guillaumin, Cyriac & Silanine, Alexandre, 2019. "Non-linear relationship between real commodity price volatility and real effective exchange rate: The case of commodity-exporting countries," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 212-228.
    5. Marc Klau & San Sau Fung, 2006. "The new BIS effective exchange rate indices," BIS Quarterly Review, Bank for International Settlements, March.
    6. Joseph Joyce & Linda Kamas, 2003. "Real and nominal determinants of real exchange rates in Latin America: Short-run dynamics and long-run equilibrium," Journal of Development Studies, Taylor & Francis Journals, vol. 39(6), pages 155-182.
    7. Corbet, Shaen & Lucey, Brian & Yarovaya, Larisa, 2018. "Datestamping the Bitcoin and Ethereum bubbles," Finance Research Letters, Elsevier, vol. 26(C), pages 81-88.
    8. Miller, Marcus & Luangaram, Pongsak, 1998. "Financial crisis in East Asia: bank runs, asset bubbles and antidotes," National Institute Economic Review, National Institute of Economic and Social Research, vol. 165, pages 66-82, July.
    9. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2003. "China, Hong Kong, and Taiwan: A quantitative assessment of real and financial integration," China Economic Review, Elsevier, vol. 14(3), pages 281-303.
    10. Hu, Yang & Oxley, Les, 2017. "Are there bubbles in exchange rates? Some new evidence from G10 and emerging market economies," Economic Modelling, Elsevier, vol. 64(C), pages 419-442.
    11. Ojede, Andrew & Lam, Eddery, 2017. "The impact of changes in monetary aggregates on exchange rate volatility in a developing country: Do structural breaks matter?," Economics Letters, Elsevier, vol. 155(C), pages 111-115.
    12. Li, Guangzhong & Zhu, Jiaqing & Li, Jie, 2016. "Understanding bilateral exchange rate risks," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 103-129.
    13. Ayesha Liaqat & Mian Sajid Nazir & Iftikhar Ahmad & Hammad Hassan Mirza & Farooq Anwar, 2020. "Do stock price bubbles correlate between China and Pakistan? An inquiry of pre‐ and post‐Chinese investment in Pakistani capital market under China‐Pakistan Economic Corridor regime," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 25(3), pages 323-335, July.
    14. George Allayannis & Jane Ihrig & James P. Weston, 2001. "Exchange-Rate Hedging: Financial versus Operational Strategies," American Economic Review, American Economic Association, vol. 91(2), pages 391-395, May.
    15. Chun Jiang & Yi Wang & Tsangyao Chang & Chi-Wei Su, 2015. "Are there bubbles in Chinese RMB-dollar exchange rate? Evidence from generalized sup ADF tests," Applied Economics, Taylor & Francis Journals, vol. 47(56), pages 6120-6135, December.
    16. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72(6), pages 584-584.
    17. Aggarwal, Raj & Mougoue, Mbodja, 1993. "Cointegration among Southeast Asian and Japanese currencies: Preliminary evidence of a Yen bloc?," Economics Letters, Elsevier, vol. 41(2), pages 161-166.
    18. Maurice Obstfeld, 1985. "Floating Exchange Rates: Experience and Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 369-464.
    19. Wei Long & Dingding Li & Qi Li, 2016. "Testing explosive behavior in the gold market," Empirical Economics, Springer, vol. 51(3), pages 1151-1164, November.
    20. Lu, Xinsheng & Li, Jianfeng & Zhou, Ying & Qian, Yubo, 2017. "Cross-correlations between RMB exchange rate and international commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 486(C), pages 168-182.
    21. WEI, Shang-Jin & Liu, Ligang & Wang, Zhi & Woo, Wing T., 2000. "The China money puzzle: will devaluation of the yuan help or hurt the Hong Kong dollar?," China Economic Review, Elsevier, vol. 11(2), pages 171-188, December.
    22. Roy, Saktinil & Kemme, David M., 2020. "The run-up to the global financial crisis: A longer historical view of financial liberalization, capital inflows, and asset bubbles," International Review of Financial Analysis, Elsevier, vol. 69(C).
    23. Allayannis, George & Ofek, Eli, 2001. "Exchange rate exposure, hedging, and the use of foreign currency derivatives," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 273-296, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ahmed, Mumtaz & Bashir, Uzma & Ullah, Irfan, 2021. "Testing for explosivity in US-Pak Exchange Rate via Sequential ADF Procedures," MPRA Paper 109607, University Library of Munich, Germany.
    2. Verena Monschang & Bernd Wilfling, 2021. "Sup-ADF-style bubble-detection methods under test," Empirical Economics, Springer, vol. 61(1), pages 145-172, July.
    3. Caravello, Tomas E. & Psaradakis, Zacharias & Sola, Martin, 2023. "Rational bubbles: Too many to be true?," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    4. Harvey, David I. & Leybourne, Stephen J. & Whitehouse, Emily J., 2020. "Date-stamping multiple bubble regimes," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 226-246.
    5. Aktham Maghyereh & Hussein Abdoh, 2022. "Bubble contagion effect between the main precious metals," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 40(1), pages 43-63, March.
    6. Yao, Can-Zhong & Li, Hong-Yu, 2021. "A study on the bursting point of Bitcoin based on the BSADF and LPPLS methods," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    7. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2006. "The Chinese economies in global context: The integration process and its determinants," Journal of the Japanese and International Economies, Elsevier, vol. 20(1), pages 128-153, March.
    8. Lucian Claudiu ANGHEL & Laurentiu-Mihai TREAPAT, 2015. "Main Economic Policies in order to Manage an Optimum Accession of Romania to the Euro Zone," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 3(1), pages 151-169, March.
    9. Hudepohl, Tom & van Lamoen, Ryan & de Vette, Nander, 2021. "Quantitative easing and exuberance in stock markets: Evidence from the euro area," Journal of International Money and Finance, Elsevier, vol. 118(C).
    10. Daan Steenkamp, 2017. "How bubbly is the New Zealand dollar?," Reserve Bank of New Zealand Discussion Paper Series DP2017/03, Reserve Bank of New Zealand.
    11. Yuchao Fan, 2022. "Dissecting the dot-com bubble in the 1990s NASDAQ," Papers 2206.14130, arXiv.org, revised Jul 2022.
    12. Steenkamp, Daan, 2018. "Explosiveness in G11 currencies," Economic Modelling, Elsevier, vol. 68(C), pages 388-408.
    13. Bouri, Elie & Shahzad, Syed Jawad Hussain & Roubaud, David, 2019. "Co-explosivity in the cryptocurrency market," Finance Research Letters, Elsevier, vol. 29(C), pages 178-183.
    14. Yang Hu, 2023. "A review of Phillips‐type right‐tailed unit root bubble detection tests," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 141-158, February.
    15. Antonia López Villavicencio & Josep Lluís Raymond Bara, 2006. "The short and long-run determinants of the real exchange rate in Mexico," Working Papers wpdea0606, Department of Applied Economics at Universitat Autonoma of Barcelona.
    16. Christie Smith & Aaron Kumar, 2018. "Crypto‐Currencies – An Introduction To Not‐So‐Funny Moneys," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1531-1559, December.
    17. Júnior, José L. R., 2008. "Exchange Rate Exposure, Foreign Currency Debt and the Use of Derivatives: Evidence from Brazil," Insper Working Papers wpe_141, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    18. Gaetano D’Adamo, 2014. "Wage spillovers across sectors in Eastern Europe," Empirical Economics, Springer, vol. 47(2), pages 523-552, September.
    19. Yin‐Wong Cheung & XingWang Qian, 2010. "Capital Flight: China's Experience," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 227-247, May.
    20. Astorga, Pablo, 2012. "Mean reversion in long-horizon real exchange rates: Evidence from Latin America," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1529-1550.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:27:y:2022:i:1:p:312-319. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.