The Research On Optimal Currency Area In Great China Based On VAR Model

The openness of the Chinese economy has greatly improved and the trade has developed rapidly since the accession to the WTO. Nowadays, China is the second-largest trading nation of the world. Therefore, we required to have stronger currency as the support of trade. In this case, the internationalization of RMB is put on the agenda. In the development of the world’s monetary system, currency regionalization trends are becoming evident. The establishment of a regional monetary union become the means to improve competitiveness in the world by more and more countries.In this context, the establishment of monetary union in Greater China will greatly improved international influence of RMB. This view is the starting point of this article. In the current situation, the links of economic and trade links in mainland, Hong Kong, Macao and Taiwan is increasingly close, especially the mainland with Hong Kong and Macao. In the year of2003, the mainland, Hong Kong and Macao were signed a series of arrangements and in the next few years signed supplemental agreements to consolidate the Partnership (CEPA). As a result, the integration of economic among Mainland, Hong Kong and Macau are more and more closely. In addition, the progressive realization of three direct links with the mainland and Taiwan leads to the movement of persons more and more freely. Because of the relaxation of goods and investment policy between Taiwan and Mainland, the two areas are closer than before, and economic and trade exchanges improve greatly. All of these have created the conditions for the establishment a unified currency union in the region of Greater China.In this paper, I use the optimal currency area theory to verify the conditions of optimal currency area in Greater China, then conclude the feasibility of establishing a unified monetary union, and finally give my own proposals. The article is divided into five parts:In the first part, I introduce the research background, research ideas and research methods of this article briefly. Moreover, the innovation and inadequacies of this paper are list here.In the second part, Ⅰ introduce the literature review on the optimal currency area theory. This part is divided into four sections:Summary of the traditional theory of optimal currency area; summary of Optimal Currency Area Empirical Research Methods; the achievement of the Optimal Currency Area Empirical research; some related research on optimal currency area of Greater China. I determine the language framework and research methods through collating and summarizing the theory of optimum currency areas.In the third part, I have described four traditional optimal currency area criteria, and on this basis, I have tested the conformity of the region of Greater China. In this part, four criteria are tested:factor mobility standards; economic openness standards; product diversification standards; financial integration standard. The conclusion of Chapter III is the reference of the result of empirical research in the fourth chapter. Here, the comparative analysis is the main research method.The fourth part is the core part of this thesis. I construct a VAR model using the data of mainland China, Hong Kong, Macao and Taiwan in order to verify whether the Greater China is the optimal currency area. The analysis here includes two aspects:First, the analysis of the correlation coefficient of three types of economic shocks, namely supply shocks, demand shocks, monetary impact; secondly, the analysis of the scale of different economic shock and the speed of the adjustment to the shocks in different areas.The fifth part is built on the basis of the fourth part. This part is the summary of the results on the analysis of the third and fourth part. Finally I have make some policy recommendations.In this paper, a combination of quantitative and qualitative methods are used, complemented by a comparative analysis attempting to make a more comprehensive and accurate conclusions.