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Financial Integration in Emerging Market Economies

Listed author(s):
  • Pasricha, Gurnain

This paper analyzes de-facto integration in some Emerging Market Economies based on behavior of deviations from Covered Interest Parity in the last decade. An Asymmetric Self Exciting Threshold Autoregressive model is used to estimate bands of speculative inaction. The estimated bands follow the pattern expected, and reveal a rational market in the sense that deviations from parity are self correcting. The paper uses information from the estimated models to construct a new index of de-facto integration. Such a price-based measure of integration is crucial to studies of effectiveness of controls and of impact of capital openness on macroeconomic variables.

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Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt7z35t1cn.

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Date of creation: 08 May 2008
Handle: RePEc:cdl:ucscec:qt7z35t1cn
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  6. Taylor, Mark P, 1989. "Covered Interest Arbitrage and Market Turbulence," Economic Journal, Royal Economic Society, vol. 99(396), pages 376-391, June.
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  11. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
  12. Bernardo S. de M. Carvalho & Márcio G.P. Garcia, 2006. "Ineffective Controls on Capital Inflows Under Sophisticated Financial Markets: Brazil in the Nineties," NBER Working Papers 12283, National Bureau of Economic Research, Inc.
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  15. Chinn, Menzie & Frankel, Jeffrey, 1994. "Patterns in Exchange Rate Forecasts for Twenty-five Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(4), pages 759-770, November.
  16. Nicolas E. & Carmen M. & Kenneth S. Rogoff, 2011. "Capital Controls: Myth and Reality--A Portfolio Balance Approach," Working Paper Series WP11-7, Peterson Institute for International Economics.
  17. Popper, Helen, 1993. "Long-term covered interest parity: evidence from currency swaps," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 439-448, August.
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  21. Philip R. Lane & Gian M Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II; Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004," IMF Working Papers 06/69, .
  22. Francis, Bill B. & Hasan, Iftekhar & Hunter, Delroy M., 2002. "Emerging market liberalization and the impact on uncovered interest rate parity," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 931-956, November.
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  24. Rhee, S Ghon & Chang, Rosita P, 1992. " Intra-day Arbitrage Opportunities in Foreign Exchange and Eurocurrency Markets," Journal of Finance, American Finance Association, vol. 47(1), pages 363-379, March.
  25. Ilan Goldfajn & André Minella, 2005. "Capital Flows and Controls in Brazil: What Have We Learned?," NBER Working Papers 11640, National Bureau of Economic Research, Inc.
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  27. Branson, William H, 1969. "The Minimum Covered Interest Differential Needed for International Arbitrage Activity," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 1028-1035, Nov./Dec..
  28. Mark P. Taylor & Elena Tchernykh Branson, 2004. "Asymmetric Arbitrage and Default Premiums Between the U.S. and Russian Financial Markets," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 1-3.
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