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Measuring macroeconomic and financial market interdependence: a critical survey

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Author Info

  • Linyue Li
  • Nan Zhang
  • Thomas D. Willett
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    Abstract

    Purpose – Study of the interdependence among economies is of considerable importance. This area includes issues such as the increasing importance of regional economic interactions, the effects of economic growth and recession in the advanced economies on emerging market countries, and financial contagion. A wide range of related terms and methodologies are used in the literature of interdependence. The purpose of this paper is to review the major concepts and various measurements of interdependence in financial markets and the real economy, serving as a reference and benchmark for future research on interdependence among specific regional or global economies. Design/methodology/approach – Major measurements of interdependence are reviewed from simple approach to more complicated ones, and strengths and weaknesses of the various measurements of interdependence are discussed. Findings – This paper surveys the various major measurements of interdependence and illustrates how they have been used to address a substantial range of issues. Originality/value – The paper shows that studies of macroeconomic and financial interdependence use the same types of econometric measurements. The review and critiques of these various types of measures should be of value to those wishing to do research in these areas and also to those wishing to have a better understanding of papers that they read.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

    Volume (Year): 4 (2012)
    Issue (Month): 2 (June)
    Pages: 128-145

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    Handle: RePEc:eme:jfeppp:v:4:y:2012:i:2:p:128-145

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    Related research

    Keywords: Contagion; Econometric measurements; Econometrics; Financial crisis; Financial markets; Interdependence; Macroeconomics;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
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    3. Essahbi Essaadi & Mohamed Boutahar, 2010. "A Measure of Variability in Comovement for Economic Variables: a Time-Varying Coherence Function Approach," Economics Bulletin, AccessEcon, vol. 30(2), pages 1054-1070.
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    7. Sula, Ozan & Willett, Thomas D., 2006. "Reversibility of Different Types of Capital Flows to Emerging Markets," MPRA Paper 384, University Library of Munich, Germany.
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    10. Apanard Angkinand & Eric Chiu & Thomas Willett, 2009. "Testing the Unstable Middle and Two Corners Hypotheses About Exchange Rate Regimes," Open Economies Review, Springer, vol. 20(1), pages 61-83, February.
    11. Otrok, C. & Whiteman, C.H., 1996. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," Working Papers 96-14, University of Iowa, Department of Economics.
    12. Kim, Soyoung & Lee, Jong-Wha & Park, Cyn-Young, 2009. "Emerging Asia: Decoupling or Recoupling," Working Papers on Regional Economic Integration 31, Asian Development Bank.
    13. Thomas D. Willett & Orawan Permpoon & Clas Wihlborg, 2010. "Endogenous OCA Analysis and the Early Euro Experience," The World Economy, Wiley Blackwell, vol. 33(7), pages 851-872, 07.
    14. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
    15. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, May.
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    17. Vargas, Gregorio A., 2006. "An Asymmetric Block Dynamic Conditional Correlation Multivariate GARCH Model," MPRA Paper 189, University Library of Munich, Germany, revised Aug 2006.
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    Citations

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    Cited by:
    1. Hall, Stephen G. & Kenjegaliev, Amangeldi & Swamy, P.A.V.B. & Tavlas, George S., 2013. "Measuring currency pressures: The cases of the Japanese yen, the Chinese yuan, and the UK pound," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 1-20.
    2. Yang, Lixiong & Lee, Chingnun & Shie, Fu Shuen, 2014. "How close a relationship does a capital market have with other markets? A reexamination based on the equal variance test," Pacific-Basin Finance Journal, Elsevier, vol. 26(C), pages 198-226.

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