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Financial Integration in Emerging Market Economies

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  • Pasricha, Gurnain

Abstract

This paper analyzes the de-facto integration in some Emerging Market Economies based on behavior of deviations from Covered Interest Parities in the last 10 years. It tests for modified market efficiency conditions in the presence of real world frictions and arrives at a single measure of de-facto integration for some Emerging Market Economies in the post-globalization era. An Asymmetric Self Exciting Threshold Autoregressive model (SETAR) is used to estimate bands of speculative inaction. Market efficiency requires the thresholds to be no wider than the transaction costs and the deviations to follow a stationary process outside the chosen bands. The analysis reveals a much more efficient financial market than has been allowed for in previous studies. The estimates of thresholds for emerging markets follow the pattern expected, given information on de-jure restrictions. Based on the estimated model, the paper constructs an index of de-facto integration and we find that Phillipines and India are the highest ranked amongst emerging markets in terms of their financial integration, and that Malaysia and Thailand occupy the lowest spot.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5278.

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Date of creation: Oct 2007
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Handle: RePEc:pra:mprapa:5278

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Keywords: Covered Interest Parity; Financial Integration; Integration Index; TAR;

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References

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Citations

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Cited by:
  1. Pasricha, Gurnain Kaur, 2008. "Imperfect Competition in Financial Markets and Capital Controls: A Model and a Test," MPRA Paper 12125, University Library of Munich, Germany.
  2. Gurnain Kaur Pasricha, 2010. "Bank Competition and International Financial Integration: Evidence Using a New Index," Working Papers 10-35, Bank of Canada.
  3. Michael Hutchison & Jake Kendall & Gurnain Pasricha & Nirvikar Singh, 2009. "Indian Capital Control Liberalization : Evidence from NDF Markets," Finance Working Papers 22971, East Asian Bureau of Economic Research.
  4. A. Prasad & Charles Frederick Kramer & Hélène Poirson, 2008. "Challenges to Monetary Policy from Financial Globalization: The Case of India," IMF Working Papers 08/131, International Monetary Fund.
  5. Michael M Hutchison & Gurnain Kaur Pasricha & Nirvikar Singh, 2012. "Effectiveness of Capital Controls in India: Evidence from the Offshore NDF Market," IMF Economic Review, Palgrave Macmillan, vol. 60(3), pages 395-438, September.

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