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A structural VARX modelling of international parities between China and Japan in the liberalization era

Author

Listed:
  • Tze-Haw Chan

    () (School of Management, Universiti Sains Malaysia)

  • Chee-Wooi Hooy

    () (School of Management, Universiti Sains Malaysia)

  • Ahmad Zubaidi Baharumshah

    () (Faculty of Economics and Management, Universiti Putra Malaysia)

Abstract

This study systemically investigates the international parity conditions for China and Japan in the liberalization era (1990:Q1-2010:Q2). Advanced econometric procedures including the structural VARX and persistent profiles are utilized in the empirical analysis. The finding upholds support for both purchasing power (PPP) and uncovered interest parity (UIP) conditions, when structural breaks due to the Asian and subprime crises were taken into accounts. By comparing the persistent profiles, we find shocks to real sector are more likely to lead to the establishment of parity at faster rate than capital market. This seems to suggest sequencing problem in market integration is not an issue.

Suggested Citation

  • Tze-Haw Chan & Chee-Wooi Hooy & Ahmad Zubaidi Baharumshah, 2012. "A structural VARX modelling of international parities between China and Japan in the liberalization era," Economics Bulletin, AccessEcon, vol. 32(1), pages 730-736.
  • Handle: RePEc:ebl:ecbull:eb-11-00438
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P67.pdf
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    References listed on IDEAS

    as
    1. Ahmad Zubaidi Baharumshah & Raj Aggarwal & Chan Tze Haw, 2007. "East Asian Real Exchange Rates and PPP: New Evidence from Panel-data Tests," Global Economic Review, Taylor & Francis Journals, pages 103-119.
    2. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, pages 293-343.
    3. Juselius, Katarina, 1995. "Do purchasing power parity and uncovered interest rate parity hold in the long run? An example of likelihood inference in a multivariate time-series model," Journal of Econometrics, Elsevier, vol. 69(1), pages 211-240, September.
    4. C. Emre Alper & Oya Pinar Ardic, 2010. "covered interest parity," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
    5. Pomfret, Richard, 2005. "Sequencing trade and monetary integration: issues and application to Asia," Journal of Asian Economics, Elsevier, pages 105-124.
    6. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
    7. de Sousa, José & Mayer, Thierry & Zignago, Soledad, 2012. "Market access in global and regional trade," Regional Science and Urban Economics, Elsevier, pages 1037-1052.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Chan, Tze-Haw & Baharumshah, Ahmad Zubaidi, 2012. "Financial Integration between China and Asia Pacific Trading Partners: Parities Evidence from the First- and Second-generation Panel Tests," MPRA Paper 37801, University Library of Munich, Germany.
    2. Chan, Tze-Haw, 2012. "Assessing the international parity conditions and transmission mechanism for Malaysia-China," MPRA Paper 38930, University Library of Munich, Germany.

    More about this item

    Keywords

    International Parity Conditions; Market Integration; Structural VARX Modelling; Bootstrapping;

    JEL classification:

    • F3 - International Economics - - International Finance
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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