Kisswani, Khalid/ M. and Nusair, Salah/ A. (2011): Non-linear convergence in Asian interest rates and inflation rates.
Download (887Kb) | Preview
We examine the dynamics of convergence of the ASEAN5 plus the big three for nominal interest rates, inflation rates, and real interest rates. We test for convergence relative to the U.S and Japan, using monthly data over the period January 1990 - December 2010, using non-linear unit root tests. The results show strong evidence of stationary inflation and real interest rate differentials in all but China’s inflation differential relative to the U.S., and stationary nominal interest differentials in most of the cases. We interpret these results as convergence in inflation rates and real interest rates in all cases, and as nominal interest convergence in most of the cases. Moreover, examining the impact of the Asian crisis shows less number of convergences before the crisis and more convergences after the crisis. This suggests that convergence has increased after the 1997/98 Asian crisis, and that the crisis has pulled the economies together.
|Item Type:||MPRA Paper|
|Original Title:||Non-linear convergence in Asian interest rates and inflation rates|
|Keywords:||interest rates convergence; inflation convergence; nonlinear unit root tests|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
|Depositing User:||Khalid Kisswani|
|Date Deposited:||18. Oct 2011 18:40|
|Last Modified:||16. Feb 2013 07:00|
1. Aksoy Y, Orphanides A, Small D, Wieland V, and Wilcox D (2006). A quantitative exploration of the opportunistic approach to disinflation. Journal of Monetary Economics 53:1877-1893.
2. Baba C (2007). Price dispersion across and within countries: The case of Japan and Korea. Journal of the Japanese and International Economies 21(2):237–259
3. Baharumshah A, Liew V, Mittelhammer R (2010a). Non-linearities in real interest rate parity: evidence from OECD and Asian developing economies. Global Economic Review 39(4):351-364.
4. Baharumshah A, Liew V, Chowdhury I (2010b). Asymmetry dynamics in real exchange rates: New results on East Asian currencies. International Review of Economics and Finance 19:648-661.
5. Baharumshah A, Haw C, Masih M, Lau E (2009). Financial integration of East Asian economies: evidence from real interest parity. Applied Economics 1-12.
6. Baharumshah A, Liew V, Hamzah N (2008). Real interest parity in the ASEAN-5 countries: a nonlinear perspective. Applied Economics Letters 15:955-958.
7. Balke N, Fomby T (1997). Threshold cointegration. International Economic Review 38(3):627-645.
8. Bierens H (2000). Nonparametric nonlinear cotrending analysis, with an application to interest and inflation in the United States. Journal of Business and Economic Statistics 18(3):323-337.
9. Cavoli T, Rajan R (2006). Inflation targeting arrangements in Asia: exploring the role of the exchange rate. Singapore Center for Applied and Policy Economics, SCAPE Working Paper Series, Paper No. 2006/03 – Jan 2006.
10. Caner M, Hansen B (2001). Threshold autoregression with a unit root. Econometrica 69(6):1555-1596.
11. Christopoulos D, Leon-Ledesma M (2007). A long-run non-linear approach to the Fisher effect. Journal of Money, Credit and Banking 39(2-3):543-559.
12. Choi C-Y, Moh Y-K (2007). How useful are tests for unit-root in distinguishing unit-root processes from stationary but non-linear processes? Econometrics Journal 10(1):82-112.
13. Choudhry T (2005). Asian currency crisis and the generalized PPP: evidence from the Far East. Asian Economic Journal 19:137-57.
14. Chow H, Kim Y (2006). Does greater exchange rate flexibility affect interest rates in post-crisis Asia? Journal of Asian Economics 17:478-493.
15. Coakley J, Fuertes A (2002). Asymmetric dynamics in UK real interest rates. Applied Financial Economics 12:379-387.
16. Enders W, Granger C (1998). Unit-root tests and asymmetric adjustment with an example using the term structure of the interest rates. Journal of Business and Economic Statistics 16(3):304-311.
17. Frankel J (1992). Measuring international capital mobility: a review. American Economic Review 82:197-202.
18. Granger C, Terasvirta T (1993). Modeling nonlinear economic relationships. Oxford: Oxford University Press.
19. Holmes M (2004). Is there non-linear real exchange rate adjustment for the Asian economies? ASEAN Economic Bulletin 21(2):198-212.
20. Holmes M, Maghrebi N (2004). Asian real interest rates, nonlinear dynamics, and international parity. International Review of Economics and Finance 13:387-405.
21. Ji P, Kim J (2009). Real interest rate linkages in the Pacific-Basin region. International review of Economics and Finance 18:440-448.
22. Kapetanios G, Shin Y, Snell A (2003). Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics 112:359-379.
23. Lanne M (2006). Nonlinear dynamics of interest rates and inflation. Journal of Applied Econometrics 21:1157-68.
24. Lee H-Y, Wu J-L (2004). Convergence of interest rates around the Pacific Rim. Applied Economics 36:1281-1288.
25. Maki D (2005). Asymmetric adjustment of the equilibrium relationship between the nominal interest rate and inflation rate. Economics Bulletin 3(9):1-8.
26. Million N (2004). Central bank’s interventions and the Fisher hypothesis: a threshold cointegration investigation. Economic Modeling 21(6):1051-1064.
27. Mishkin F (2000). Inflation targeting in emerging-market countries. The American Economic Review 90(2):105-109.
28. Moosa I, Bhatti R (1997). Are Asian Markets Integrated? Evidence for Six Countries vis-à-vis Japan. International Economic Journal 11(1):51-67
29. Nusair S (2008). Purchasing power parity under regime shifts: an application to Asian countries. Asian Economic Journal 22(3):241-266
30. Orphanides A, Wilcox D (2002). The opportunistic approach to disinflation. International Finance 5(1):47-71.
31. Pippenger M, Goering G (1993). A note on the empirical power of unit root tests under threshold processes. Oxford Bulletin of Economics and Statistics 55(4):473-481.
32. Siklos P, Wohar M (1997). Convergence in interest rates and inflation rates across countries and over time. Review of International Economics 5(1):129-141.
33. Tang K (2011). The precise form of uncovered interest parity: A Heterogeneous panel application in ASEAN-5 countries. Economic Modelling 28:568–573
34. Taylor M, Sarno L (1998). The behavior of real exchange rates during the Post-Bretton Woods period. Journal of International Economics 46(2):281-312.
35. Terasvirta T (1994). Specification, estimation, and evaluation of smooth transition autoregressive models. Journal of American Statistic Association 89:212-281.
36. Terasvirta T, Anderson H (1992). Characterizing nonlinearities in business cycles using smooth transition autoregressive models. Journal of Applied Econometrics 7:S119-S136.
37. Weidmann J (1997). New hope for the Fisher effect? A reexamination using threshold cointegration. University of Bonn, Sonderforschungsbereich 303 Discussion paper B-385.
38. Zivot E, Andrews D (1992). Further evidence on the great crash, the oil-price shock, and the unit root hypothesis. Journal of Business and Economic Statistics 10(3):251-270.
39. Zhou Su (2008). Stationarity of Asian-Pacific real exchange rates. Economics Letters 98:16-22.