Advanced Search
MyIDEAS: Login to save this paper or follow this series

Dynamic financial linkages among the Asia Pacific economies: an empirical assessment of real interest parity condition

Contents:

Author Info

  • Chan, Tze-Haw

Abstract

Real Interest Parity (RIP) has been considered as the necessary rule to justify the exchange rates regime and the extent of financial integration among countries. This study of RIP condition is particularly important for the Asia Pacific economies that have undergone a series of currency crisis and financial turmoil. We incorporate three major analyses that cover the post liberalization period prior to the Asia financial crisis (1984-1997). First, we investigate the dynamic linkages of real interest rates among ASEAN-5 economies. Second, we assess the behavior of real interest differentials of Japan-ASEAN. Third, we examine the additional transmission channels of real interest rates from the US, Hong Kong, South Korea and Taiwan. Our findings suggest that there have been substantial integration among the ASEAN-5 and the East Asian with both the US and Japanese capital markets. However, the US-dominant hypothesis is more recognized. In addition, most countries are found vulnerable to external shocks and there is less monetary autonomy given that Asian economies have converged speedy to their equilibrium rates following the impulse from the US and the Japanese real interest rates. To great extent, our empirical evidence supports the recent proposal of common currency area as an alternative regime, not only to fight against systemic failures or monetary instability, but also to avoid the macroeconomic trilemma.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/34642/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34642.

as in new window
Length:
Date of creation: 2002
Date of revision:
Handle: RePEc:pra:mprapa:34642

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Real interest parity; mean reversion; half-life; financial integration; common currency;

Find related papers by JEL classification:

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.:
as in new window
  1. Nielsen, Soren Bo, 1991. "Current-account effects of a devaluation in an optimizing model with capital accumulation," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(3), pages 569-588, July.
  2. Jeffrey A. Frankel & Alan T. MacArthur, 1987. "Political vs. Currency Premia in International Real Interest Differentials: A Study of Forward Rates for 24 Countries," NBER Working Papers 2309, National Bureau of Economic Research, Inc.
  3. Mishkin, Frederic S, 1984. " Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, American Finance Association, vol. 39(5), pages 1345-57, December.
  4. Holmes, Mark J., 2002. "Does long-run real interest parity hold among EU countries? Some new panel data evidence," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 42(4), pages 733-746.
  5. Risager, Ole, 1988. " Devaluation, Profitability and Investment," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 90(2), pages 125-40.
  6. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(2), pages 647-668, June.
  7. Maurice Obstfeld & Alan M. Taylor, 2003. "Globalization and Capital Markets," NBER Chapters, in: Globalization in Historical Perspective, pages 121-188 National Bureau of Economic Research, Inc.
  8. Al Awad, Mouawiya & Goodwin, Barry K., 1998. "Dynamic linkages among real interest rates in international capital markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(6), pages 881-907, December.
  9. Kilian, L. & Zha, T., 1999. "Quantifying the Half-Life of Deviations from PPP: The Role of Economic Priors," Papers, Michigan - Center for Research on Economic & Social Theory 99-08, Michigan - Center for Research on Economic & Social Theory.
  10. Jordan Shan & Nick Pappas, 2000. "The relative impacts of Japanese and US interest rates on local interest rates in Australia and Singapore: a Granger causality test," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(3), pages 291-298.
  11. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 423-438, August.
  12. Wu, Jyh-Lin & Fountas, Stilianos, 2000. "Real Interest Rate Parity under Regime Shifts and Implications for Monetary Policy," Manchester School, University of Manchester, University of Manchester, vol. 68(6), pages 685-700, December.
  13. Chinn, Menzie D & Frankel, Jeffrey A, 1995. "Who drives real interest rates around the Pacific Rim: the USA or Japan?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 14(6), pages 801-821, December.
  14. Kirchgassner, Gebhard & Wolters, Jurgen, 1993. "Does the DM Dominate the Euro Market? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 773-78, November.
  15. Robert E. Cumby & Maurice Obstfeld, 1984. "International Interest Rate and Price Level Linkages under Flexible Exchange Rates: A Review of Recent Evidence," NBER Chapters, in: Exchange Rate Theory and Practice, pages 121-152 National Bureau of Economic Research, Inc.
  16. Cumby, Robert E. & Mishkin, Frederic S., 1986. "The international linkage of real interest rates: The European-US connection," Journal of International Money and Finance, Elsevier, Elsevier, vol. 5(1), pages 5-23, March.
  17. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, American Economic Association, vol. 69(4), pages 610-22, September.
  18. Hassapis, Christis & Pittis, Nikitas & Prodromidis, Kyprianos, 1999. "Unit roots and Granger causality in the EMS interest rates: the German Dominance Hypothesis revisited," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(1), pages 47-73, January.
  19. Modjtahedi, Bagher, 1988. "Dynamics of real interest differentials : An empirical investigation," European Economic Review, Elsevier, Elsevier, vol. 32(6), pages 1191-1211, July.
  20. Goodwin, Barry K. & Grennes, Thomas J., 1994. "Real interest rate equalization and the integration of international financial markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 13(1), pages 107-124, February.
  21. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
  22. Mark, Nelson C., 1985. "Some evidence on the international inequality of real interest rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 4(2), pages 189-208, June.
  23. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  24. Mundell, Robert, 2003. "Prospects for an Asian currency area," Journal of Asian Economics, Elsevier, Elsevier, vol. 14(1), pages 1-10, February.
  25. Baharumshah, Ahmad Zubaidi & Haw, Chan Tze & Fountas, Stilianos, 2005. "A panel study on real interest rate parity in East Asian countries: Pre- and post-liberalization era," Global Finance Journal, Elsevier, vol. 16(1), pages 69-85, August.
  26. Eiji Fujii & Menzie D. Chinn, 2000. "Fin de Siecle Real Interest Parity," NBER Working Papers 7880, National Bureau of Economic Research, Inc.
  27. Imad Moosa & Razzaque Bhatti, 1996. "Does Europe have an integrated capital market? Evidence from real interest parity tests," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 3(8), pages 517-520.
  28. Phylaktis, Kate, 1999. "Capital market integration in the Pacific Basin region: an impulse response analysis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(2), pages 267-287, February.
  29. Darren Pain & Ryland Thomas, 1997. "Real Interest Rate Linkages: Testing for Common Trends and Cycles," Bank of England working papers, Bank of England 65, Bank of England.
  30. Jyh-Lin Wu & Show-Lin Chen, 1998. "A Re-examination of Real Interest Rate Parity," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(4), pages 837-851, November.
  31. Merrick, John Jr. & Saunders, Anthony, 1986. "International expected real interest rates: New tests of the parity hypothesis and U.S. fiscal policy effects," Journal of Monetary Economics, Elsevier, Elsevier, vol. 18(3), pages 313-322, November.
  32. Phylaktis, Kate, 1997. "Capital market integration in the Pacific-Basin region: An analysis of real interest rate linkages," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 5(2), pages 195-213, June.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:34642. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.