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Assessing the international parity conditions and transmission mechanism for Malaysia-China

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  • Chan, Tze-Haw

Abstract

We construct a structural system that jointly examines Purchasing Power and Interest Parity conditions for Malaysia-China during 1996Q1-2010Q4. Structural VARX, VECMX, over-identifying restrictions, bootstrapping and persistent profiles are utilized in the analyses. We find support for interaction between the goods and capital markets of Malaysia-China, when Asia crisis and subprime crisis are taken into accounts. The faster pace of adjustment towards price instead of interest equilibrium implies the non-appearance of sequencing problem in economic integration. Nevertheless, it is of concern that maintaining a rigid foreign exchange with major trading partner could be costly with potentially contagious price instability and financial risk.

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  • Chan, Tze-Haw, 2012. "Assessing the international parity conditions and transmission mechanism for Malaysia-China," MPRA Paper 38930, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38930
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    More about this item

    Keywords

    International Parity Conditions; Economic Integration; Transmission Mechanism; VARX; VECMX;
    All these keywords.

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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