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International Financial Integration And Real Exchange Rate Long-Run Dynamics In Emerging Countries

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  • Christophe RAULT

    ()

  • Guglielmo Maria CAPORALE
  • Thouraya HADJ AMOR

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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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp970.

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Length: pages
Date of creation: 01 Sep 2009
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Handle: RePEc:wdi:papers:2009-970

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

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