The relative influence of US and Japan on real interest rates around the Pacific Rim
This paper investigates the relative influence of US and Japanese real interest rates in the determination of local Pacific Rim rates, where influence is defined by the presence of common stochastic trends. Alternatively, we ask whether real rates are driven by the same shocks. Furthermore, the degree to which real interest parity holds is examined. Rather than searching for instantaneous real interest parity, this study searches for long run interest parity, allowing for a constant due to differing risk attributes and time invariant exchange risk premia. The cointegration testing methodology of Johansen (1988) is adopted for this analysis, which allows for multiple cointegrating vectors. The results indicate that Hong Kong, Malaysia and Taiwan are integrated with both the US and Japan (in terms of cointegration and positive covariation), while only Singapore is solely integrated with the US. On the other hand Korea, and perhaps Indonesia and Thailand appear to be more closely linked with Japan. Real interest parity holds for only the following interest rate pairs: US-Singapore, US- Taiwan and Japan-Taiwan.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reuven Glick, 1987. "Interest rate linkages in the Pacific Basin," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 31-42.
- Engel, Charles & Rogers, John H, 1996.
"How Wide Is the Border?,"
American Economic Review,
American Economic Association, vol. 86(5), pages 1112-25, December.
- Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
- Engel, C. & Rogers, J.H., 1995. "How Wide is the Border?," Papers 4-95-16, Pennsylvania State - Department of Economics.
- Charles Engel & John H. Rogers, 1995. "How wide is the border?," International Finance Discussion Papers 498, Board of Governors of the Federal Reserve System (U.S.).
- Charles Engel & John H. Rogers, 1995. "How wide is the border?," Research Working Paper 95-09, Federal Reserve Bank of Kansas City.
- Maurice Obstfeld., 1993. "Model Trending Real Exchange Rates," Center for International and Development Economics Research (CIDER) Working Papers C93-011, University of California at Berkeley.
- Frankel, Jeffrey A., 1989.
"Quantifying International Capital Mobility in the 1980s,"
Department of Economics, Working Paper Series
qt4fw7c7bh, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Jeffrey A. Frankel, 1991. "Quantifying International Capital Mobility in the 1980s," NBER Chapters, in: National Saving and Economic Performance, pages 227-270 National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel, 1989. "Quantifying International Capital Mobility in the 1980s," NBER Working Papers 2856, National Bureau of Economic Research, Inc.
- Joseph E. Gagnon & Mark D. Unferth, 1993.
"Is there a world real interest rate?,"
International Finance Discussion Papers
454, Board of Governors of the Federal Reserve System (U.S.).
- Richard C. Marston, 1992. "Determinants of Shrt-Term Real Interest Differentials Between Japan and the United States," NBER Working Papers 4167, National Bureau of Economic Research, Inc.
- Godfrey, Leslie G, 1978. "Testing against General Autoregressive and Moving Average Error Models When the Regressors Include Lagged Dependent Variables," Econometrica, Econometric Society, vol. 46(6), pages 1293-1301, November.
- Glick, Reuven & Hutchison, Michael, 1990. "Financial liberalization in the Pacific Basin: Implications for real interest rate linkages," Journal of the Japanese and International Economies, Elsevier, vol. 4(1), pages 36-48, March.
- Michael M. Hutchison & Nirvikar Singh, 1993. "Long-term international capital mobility: new evidence from equilibrium real interest rate linkages," Pacific Basin Working Paper Series 93-06, Federal Reserve Bank of San Francisco.
- 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.
- Mitsuhiro Fukao & Masaharu Hanazaki, 1986. "Internationalisation of Financial Markets: Some Implications for Macroeconomic Policy and for the Allocation of Capital," OECD Economics Department Working Papers 37, OECD Publishing.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpif:9508004. 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: (EconWPA)
If references are entirely missing, you can add them using this form.