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Nonlinear convergence in Asian interest and inflation rates: evidence from Asian countries

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  • Khalid Kisswani

    ()

  • Salah Nusair

    ()

Abstract

We examine the dynamics of convergence in seven Asian countries for nominal and real interest rates, and inflation rates. We test for convergence relative to the U.S. and Japan, using quarterly data 1973:2–2011:3, employing nonlinear unit root tests. The linearity test shows evidence of nonlinearity in all the cases. In most cases, we find evidence of logistic smooth transition autoregression-type non-linearity. Moreover, nonlinear unit root tests reveal evidence of nonlinear stationary nominal and real interest rates and inflation differentials in all cases. We interpret these results as convergence in inflation rates and real and nominal interest rates. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Khalid Kisswani & Salah Nusair, 2014. "Nonlinear convergence in Asian interest and inflation rates: evidence from Asian countries," Economic Change and Restructuring, Springer, vol. 47(3), pages 155-186, August.
  • Handle: RePEc:kap:ecopln:v:47:y:2014:i:3:p:155-186
    DOI: 10.1007/s10644-013-9146-7
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    References listed on IDEAS

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    1. Huang, Ying & Guo, Feng, 2006. "Is currency union a feasible option in East Asia?: A multivariate structural VAR approach," Research in International Business and Finance, Elsevier, vol. 20(1), pages 77-94, March.
    2. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    3. repec:ebl:ecbull:v:3:y:2005:i:9:p:1-8 is not listed on IDEAS
    4. Aksoy, Yunus & Orphanides, Athanasios & Small, David & Wieland, Volker & Wilcox, David, 2006. "A quantitative exploration of the opportunistic approach to disinflation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1877-1893, November.
    5. Ogawa, Eiji & Ito, Takatoshi, 2002. "On the Desirability of a Regional Basket Currency Arrangement," Journal of the Japanese and International Economies, Elsevier, vol. 16(3), pages 317-334, September.
    6. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-645, August.
    7. Ulrich Volz, 2013. "Lessons of the European crisis for regional monetary and financial integration in East Asia," Asia Europe Journal, Springer, vol. 11(4), pages 355-376, December.
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    Cited by:

    1. Luis A. Gil-Alana & Andrea Mervar & James E. Payne, 2017. "The stationarity of inflation in Croatia: anti-inflation stabilization program and the change in persistence," Economic Change and Restructuring, Springer, vol. 50(1), pages 45-58, February.

    More about this item

    Keywords

    Interest rates convergence; Inflation convergence; Nonlinear unit root tests; F15; F36; F41; F42;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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