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International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence

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Author Info
Guglielmo Maria Caporale
Thouraya Hadj Amor
Christophe Rault

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Abstract

The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out "second-generation" tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 941.

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Length: 21 p.
Date of creation: 2009
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Handle: RePEc:diw:diwwpp:dp941

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Related research
Keywords: emerging economies; real exchange rate; financial integration; misalignment; second-generation panel unit-root and cointegration tests;

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F0 - International Economics - - General
F31 - International Economics - - International Finance - - - Foreign Exchange
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods

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