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A structural VARX modelling of international parities between China and Japan in the liberalization era

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Author Info

  • Tze-Haw Chan

    ()
    (School of Management, Universiti Sains Malaysia)

  • Chee-Wooi Hooy

    ()
    (School of Management, Universiti Sains Malaysia)

  • Ahmad Zubaidi Baharumshah

    ()
    (Faculty of Economics and Management, Universiti Putra Malaysia)

Abstract

This study systemically investigates the international parity conditions for China and Japan in the liberalization era (1990:Q1-2010:Q2). Advanced econometric procedures including the structural VARX and persistent profiles are utilized in the empirical analysis. The finding upholds support for both purchasing power (PPP) and uncovered interest parity (UIP) conditions, when structural breaks due to the Asian and subprime crises were taken into accounts. By comparing the persistent profiles, we find shocks to real sector are more likely to lead to the establishment of parity at faster rate than capital market. This seems to suggest sequencing problem in market integration is not an issue.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P67.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 730-736

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Handle: RePEc:ebl:ecbull:eb-11-00438

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Related research

Keywords: International Parity Conditions; Market Integration; Structural VARX Modelling; Bootstrapping;

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References

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  1. Pesaran, M.H. & Shin, Y., 1993. "Cointegration and Speed of Convergence to Equilibrium," Cambridge Working Papers in Economics 9311, Faculty of Economics, University of Cambridge.
  2. Virginie Coudert & C├ęcile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center.
  3. Richard Pomfret, 2004. "Sequencing Trade and Monetary Integration: Issues and Applications to Asia," School of Economics Working Papers 2004-14, University of Adelaide, School of Economics.
  4. Ahmad Zubaidi Baharumshah & Raj Aggarwal & Chan Tze Haw, 2007. "East Asian Real Exchange Rates and PPP: New Evidence from Panel-data Tests," Global Economic Review, Taylor & Francis Journals, vol. 36(2), pages 103-119.
  5. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
  6. Juselius, Katarina, 1995. "Do purchasing power parity and uncovered interest rate parity hold in the long run? An example of likelihood inference in a multivariate time-series model," Journal of Econometrics, Elsevier, vol. 69(1), pages 211-240, September.
  7. C. Emre Alper & Oya Pinar Ardic, 2010. "covered interest parity," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
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Cited by:
  1. Chan, Tze-Haw, 2012. "Assessing the international parity conditions and transmission mechanism for Malaysia-China," MPRA Paper 38930, University Library of Munich, Germany.
  2. Chan, Tze-Haw & Baharumshah, Ahmad Zubaidi, 2012. "Financial Integration between China and Asia Pacific Trading Partners: Parities Evidence from the First- and Second-generation Panel Tests," MPRA Paper 37801, University Library of Munich, Germany.

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