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Real interest rate parity: evidence from East Asian economies relative to China

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  • Liew, Venus Khim-Sen
  • Ling, Tai-Hu

Abstract

This study examines the real interest rate parity (RIP) hypothesis in the case of East Asian economies by taking China as foreign counterpart. Results obtained from panel unit root tests are in line with previous findings that are supportive of the hypothesis. The estimated half-life of the RIP deviations is 3.21 quarters, indicating RIP holds strongly in this region with respect to China. This implies that the choices and effectiveness of the monetary and fiscal policies in the East Asian economies will be very much influenced by the external factors originating from China, in additional to Japan and US as identified in other studies. Furthermore, judging from the another finding of this study that East Asian economies is more integrated with Japan than China, China has yet to further liberalize its financial system before it can overtake Japan as leading financial centre or as anchor country for common currency area in this region.

Suggested Citation

  • Liew, Venus Khim-Sen & Ling, Tai-Hu, 2008. "Real interest rate parity: evidence from East Asian economies relative to China," MPRA Paper 7291, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7291
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    File URL: https://mpra.ub.uni-muenchen.de/7291/1/MPRA_paper_7291.pdf
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    References listed on IDEAS

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    Cited by:

    1. Claudiu Tiberiu Albulescu & Dominique Pépin & Aviral Kumar Tiwari, 2016. "A RE-EXAMINATION OF REAL INTEREST PARITY IN CEECs USING ‘OLD’ AND ‘NEW’ SECOND-GENERATION PANEL UNIT ROOT TESTS," Bulletin of Economic Research, Wiley Blackwell, vol. 68(2), pages 133-150, April.
    2. Claudiu Tiberiu Albulescu & Dominique Pepin & Aviral Kumar Tiwari, 2014. "A re-examination of real interest parity in CEECs using old and new generations of panel unit root tests," Papers 1403.3627, arXiv.org.
    3. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2011. "Real interest parity: A note on Asian countries using panel stationarity tests," Journal of Asian Economics, Elsevier, vol. 22(6), pages 550-557.

    More about this item

    Keywords

    Real interest rate parity; East Asia; panel unit root test;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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