Munich Personal RePEc Archive

Assessing the international parity conditions and transmission mechanism for Malaysia-China

Chan, Tze-Haw (2012): Assessing the international parity conditions and transmission mechanism for Malaysia-China.

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Abstract

We construct a structural system that jointly examines Purchasing Power and Interest Parity conditions for Malaysia-China during 1996Q1-2010Q4. Structural VARX, VECMX, over-identifying restrictions, bootstrapping and persistent profiles are utilized in the analyses. We find support for interaction between the goods and capital markets of Malaysia-China, when Asia crisis and subprime crisis are taken into accounts. The faster pace of adjustment towards price instead of interest equilibrium implies the non-appearance of sequencing problem in economic integration. Nevertheless, it is of concern that maintaining a rigid foreign exchange with major trading partner could be costly with potentially contagious price instability and financial risk.

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