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Measuring Regional Market Integration by Dynamic Factor Error Correction Model (DF-ECM) Approach - The Case of Developing Asia

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Author Info

  • Duo Qin

    (Queen Mary, University of London)

  • Marie Anne Cagas

    (University of the Philippines)

  • Geoffrey Ducanes

    (University of the Philippines)

  • Nedelyn Magtibay-Ramos

    (Asian Development Bank)

  • Pilipinas F. Quising

    (Asian Development Bank)

Abstract

This paper examines empirically the dynamic process of regional market integration for twelve individual Asian economies by a new modeling approach, which combines DF with ECM. This new approach enables us to obtain latent regional dynamic factors, which correspond well with the 'foreign' parity variables in theory when market is imperfectly integrated and which act, in explaining domestic short-run price adjustments, as leading-indicators in an error-correction form. The power of the DF-ECM approach is illustrated in its application to measuring market integration in the developing Asian region using monthly data of the past decade.

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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 565.

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Date of creation: Sep 2006
Date of revision:
Handle: RePEc:qmw:qmwecw:wp565

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Keywords: Law of one price; Market integration; Dynamic factor; Error-correction model;

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Cited by:
  1. Qin, Duo, 2007. "Uncover Latent PPP by Dynamic Factor Error Correction Model (DF-ECM) Approach: Evidence from five OECD countries," Economics Discussion Papers 2007-29, Kiel Institute for the World Economy.

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