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Capital Market Integration in the Pacific Basin Region; An Analysis of Real Interest Rate Linkages

  • Kate Phylaktis

This paper investigates the extent to which financial markets in the Pacific Basin Region have become more integrated, by analyzing the comovements of real interest rates. The paper uses cointegration and error correction models and draws inferences on the degree of capital market integration by looking at the speed of adjustment of real interest rates following a shock. The results show that there has been an increase in capital market integration with both U.S. and Japan during the 1980s. Japan has not, however, overtaken U.S. in dominating the financial markets of these countries, except possibly in the case of Malaysia. Capital market integration is found to be greater in Singapore, Hong Kong and Taiwan Province of China. On the other hand, Japan is the least integrated country with the United States.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/133.

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Length: 32
Date of creation: 01 Dec 1995
Date of revision:
Handle: RePEc:imf:imfwpa:95/133
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  1. Bonser-Neal, Catherine & Roley, V. Vance, 1994. "Are Japanese interest rates too stable?," Journal of International Money and Finance, Elsevier, vol. 13(3), pages 291-318, June.
  2. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  3. V. Vance Roley & Catherine Bonser-Neal, 1994. "Are Japanese interest rates too stable?," Research Working Paper 94-09, Federal Reserve Bank of Kansas City.
  4. Takatoshi Ito, 1984. "Use of (Time-Domain) Vector Autoregressions to Test Uncovered Interest Parity," NBER Working Papers 1493, National Bureau of Economic Research, Inc.
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  6. Helmut Reisen & Hélène Yèches, 1991. "Time-Varying Estimates on the Openness of the Capital Account in Korea and Taiwan," OECD Development Centre Working Papers 42, OECD Publishing.
  7. Mishkin, Frederic S, 1984. " Are Real Interest Rates Equal across Countries? An Empirical Investigation of International Parity Conditions," Journal of Finance, American Finance Association, vol. 39(5), pages 1345-57, December.
  8. Donald J. Mathieson & Liliana Rojas-Suárez, 1992. "Liberalization of the Capital Account; Experiences and Issues," IMF Working Papers 92/46, International Monetary Fund.
  9. Phylaktis, Kate, 1988. "Capital controls: The case of Argentina," Journal of International Money and Finance, Elsevier, vol. 7(3), pages 303-320, September.
  10. Yusuru Ozeki & George S. Tavlas, 1992. "The Internationalization of Currencies; An Appraisal of the Japanese Yen," IMF Occasional Papers 90, International Monetary Fund.
  11. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
  12. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  13. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  14. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  15. Robert E. Cumby & Frederic S. Mishkin, 1987. "The International Linkage of Real Interest Rates: The European - U.S. Connection," NBER Working Papers 1423, National Bureau of Economic Research, Inc.
  16. Mark, Nelson C., 1985. "Some evidence on the international inequality of real interest rates," Journal of International Money and Finance, Elsevier, vol. 4(2), pages 189-208, June.
  17. Haque, Nadeem U. & Montiel, Peter, 1991. "Capital mobility in developing countries: Some empirical tests," World Development, Elsevier, vol. 19(10), pages 1391-1398, October.
  18. Goodwin, Barry K. & Grennes, Thomas J., 1994. "Real interest rate equalization and the integration of international financial markets," Journal of International Money and Finance, Elsevier, vol. 13(1), pages 107-124, February.
  19. Michael P. Dooley & Menzie Chinn, 1995. "Financial Repression and Capital Mobility: Why Capital Flows and Covered Interest Rate Differentials Fail to Measure Capital Market Integration," NBER Working Papers 5347, National Bureau of Economic Research, Inc.
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