The economic fundamental and economic policy uncertainty of Mainland China and their impacts on Taiwan and Hong Kong

Chor-yiu (CY) Sin

International Review of Economics & Finance, 2015, vol. 40, issue C, 298-311

Abstract: The opening-up of Mainland China has significantly increased its economic relationship with Taiwan and Hong Kong. Trade among Taiwan, Hong Kong and Mainland China has registered record highs in recent years, and capital flow has grown exponentially. The paper applies structural vector autoregressive models to the Taiwan and Hong Kong economies to investigate the impacts of the Chinese economy over the past decade. Identification of the structural shocks is based on the fact that Mainland China has a causal effect on Taiwan and Hong Kong, but not the reverse. Our identification scheme generalizes that in Blanchard and Quah (1989) and considers both short-run restrictions and long-run restrictions. Based on a New Keynesian model, a simple model with four domestic variables namely output, interest rate, price level and real exchange rate, as well as two foreign variables namely Mainland China output and the China monthly index of economic policy uncertainty, is constructed. By considering the short-run and the long-run impacts, we attempt to address the following issues: (i) Is domestic output, or some other domestic variables, affected by the uncertain economic conditions? (ii) Is it a long-run effect, or simply a short-run effect?

Keywords: Economic policy uncertainty; Long-run restriction; Mainland China (the Mainland); Short-run restriction; Structural vector autoregression (SVAR) (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056015000489
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:40:y:2015:i:c:p:298-311

DOI: 10.1016/j.iref.2015.02.026

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().