Interest Parity Conditions as Indicators of Financial Integration in East Asia
Market participants and policymakers have a growing interest in the development of East Asian financial markets, and to the extent to which these markets are open and influenced by world markets. This paper examines the information contained in interest parity conditions about the international integration of a wide range of economies in East Asia. Legal restrictions on the capital account and tests of covered, uncovered and real interest parity are presented in some detail. Using standard regressions, cointegration analysis and error decompositions, it is argued that uncovered interest parity tests reveal a surprisingly large amount of information about financial openness. For example, McCallum’s (1994) model of the interaction of uncovered interest parity and a monetary policy reaction function can be used to explain striking anomalies that arise between countries. Openness and the importance of foreign interest rate shocks appear to have increased in most countries, although Korea remains an important exception. Four policy implications are discussed in the conclusion.
|Date of creation:||Jun 1997|
|Date of revision:|
|Contact details of provider:|| Postal: Canberra ACT 2601|
Phone: (61-2) 6249 3780
Fax: (61-2) 6249 3941
Web page: https://crawford.anu.edu.au/research_units/ajrc/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:csg:ajrcau:268. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Akira Kinefuchi)
If references are entirely missing, you can add them using this form.