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Measuring Regional Market Integration by Dynamic Factor Error Correction Model (DF-ECM) Approach - The Case of Developing Asia

Author

Listed:
  • Duo Qin

    (Queen Mary, University of London)

  • Marie Anne Cagas

    (University of the Philippines)

  • Geoffrey Ducanes

    (University of the Philippines)

  • Nedelyn Magtibay-Ramos

    (Asian Development Bank)

  • Pilipinas F. Quising

    (Asian Development Bank)

Abstract

This paper examines empirically the dynamic process of regional market integration for twelve individual Asian economies by a new modeling approach, which combines DF with ECM. This new approach enables us to obtain latent regional dynamic factors, which correspond well with the 'foreign' parity variables in theory when market is imperfectly integrated and which act, in explaining domestic short-run price adjustments, as leading-indicators in an error-correction form. The power of the DF-ECM approach is illustrated in its application to measuring market integration in the developing Asian region using monthly data of the past decade.

Suggested Citation

  • Duo Qin & Marie Anne Cagas & Geoffrey Ducanes & Nedelyn Magtibay-Ramos & Pilipinas F. Quising, 2006. "Measuring Regional Market Integration by Dynamic Factor Error Correction Model (DF-ECM) Approach - The Case of Developing Asia," Working Papers 565, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:wp565
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    Cited by:

    1. Qin, Duo, 2008. "Uncover Latent PPP by Dynamic Factor Error Correction Model (DF-ECM) Approach: Evidence from Five OECD Countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-26.

    More about this item

    Keywords

    Law of one price; Market integration; Dynamic factor; Error-correction model;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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