Pasricha, Gurnain (2007): Financial Integration in Emerging Market Economies.
Download (232Kb) | Preview
This paper analyzes the de-facto integration in some Emerging Market Economies based on behavior of deviations from Covered Interest Parities in the last 10 years. It tests for modified market efficiency conditions in the presence of real world frictions and arrives at a single measure of de-facto integration for some Emerging Market Economies in the post-globalization era. An Asymmetric Self Exciting Threshold Autoregressive model (SETAR) is used to estimate bands of speculative inaction. Market efficiency requires the thresholds to be no wider than the transaction costs and the deviations to follow a stationary process outside the chosen bands. The analysis reveals a much more efficient financial market than has been allowed for in previous studies. The estimates of thresholds for emerging markets follow the pattern expected, given information on de-jure restrictions. Based on the estimated model, the paper constructs an index of de-facto integration and we find that Phillipines and India are the highest ranked amongst emerging markets in terms of their financial integration, and that Malaysia and Thailand occupy the lowest spot.
|Item Type:||MPRA Paper|
|Institution:||University of California, Santa Cruz|
|Original Title:||Financial Integration in Emerging Market Economies|
|Keywords:||Covered Interest Parity; Financial Integration; Integration Index; TAR|
|Subjects:||F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
F - International Economics > F3 - International Finance > F30 - General
F - International Economics > F3 - International Finance
|Depositing User:||Gurnain Pasricha|
|Date Deposited:||11. Oct 2007|
|Last Modified:||13. Feb 2013 15:42|
Balke, M.E. and N.S. Wohar (1998) Nonlinear Dynamics and Covered Interest Rate Parity. Empirical Economics, 23, 535-559. Branson, W.H. (1969) The Minimum Covered Interest Differential Needed For International Arbitrage Activity. Journal Of Political Economy 77(6), 1028-35. Branson, E.T. And Taylor, M.P. (2004). Asymmetric Arbitrage And Default Premiums Between US And Russian Financial Markets. IMF Staff Papers, 51. Cheung, Y.-W., Chinn, M.D., Fuijii, E. (2003) The Chinese Economies in Global Context: The Integration Process and its Determinants. Journal of Japanese International Economics, Vol 20, pp. 128-153. Cheung, Y.-W., Chinn, M.D., Garcia Pascual, A. (2005) Empirical Exchange Rate Models Of The Nineties, Are Any Fit To Survive? Journal Of International Money And Finance 24, 1150-1175. Chinn, M. (2006) The (Partial) Rehabilitation Of Interest Rate Parity In Floating Rate Era: Longer Horizons, Alternative Expectations And Emerging Markets. Journal Of International Money And Finance 25, 7-21 Chinn, M. And J. Frankel (1994) Patterns In Exchange Rate Forecasts For Twenty-Five Currencies, Journal Of Money, Credit, And Banking, Vol. 26, No. 4, November, Pp. 759-70. Chinn, M. And J. Frankel (2002) Survey Data On Exchange Rate Expectations: More Currencies, More Horizons, More Tests, In W. Allen And D. Dickinson (Editors), Monetary Policy, Capital Flows And Financial Market Developments In The Era Of Financial Globalisation: Essays In Honour Of Max Fry, Routledge, London: 145-67. Clinton, K. (1988) Transactions Costs And Covered Interest Arbitrage: Theory And Evidence, Journal Of Political Economy, 96, 358-70. Edwards, S. (2005) Capital Controls, Sudden Stops and Current Account Reversals, NBER Working Paper No. 11170, Cambridge, March 2005. Flood, R.P. And M.P. Taylor (1997) Exchange Rate Economics: What’s Wrong With The C Conventional Macro Approach?, In J. Frankel, G. Galli, And A. Giovannini (Editors) TheMicrostructure Of Foreign Exchange Markets, Chicago: Univ. Of Chicago Press For NBER, Pp. 262-301. Francis, B., Hasan, I. And Hunter, D. (2002) Emerging Market Liberalization And The Impact On Uncovered Interest Parity. Federal Reserve Bank Of Atlanta Working Paper 2002-16, August 2002. Frankel, J.A. (1991) Quantifying International Capital Mobility In The 1980’s. NBER Working Paper No. 2856. Frankel, J.A., Poonawala, J. (2004) The Forward Market In Emerging Currencies, Less Biased Than In Major Currencies. Mimeo, Kennedy School Of Government, Cambridge, MA. Frenkel, J.A. And Levich, R.M. (1975) Covered Interest Arbitrage: Unexploited Profits?, Journal Of Political Economy, 83, 325-38. Kaminsky, G.L. and Reinhart, C. (1999) The Twin Crises: The Causes of Balance of Payments Problems, The American Economic Review, pp 473-500, June 1999. Keynes, J.M. (1923) A Truct On Monetnry Reform (London: Macmillan). Lane, P. and Milesi-Ferretti, G.M. (2006) The External Wealth Of Nations: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004. IMF Working Paper No. 69, March 2006. Lane, P. and Milesi-Ferretti, G.M. (2004) Financial Globalization And Exchange Rates, CEPR Discussion Papers, 4745. Magud, N.E., Reinhart, C. and Rogoff, K. (2005) Capital Controls: Myth and Reality A Portfolio Balance Approach to Capital Controls. University of Oregon Economics Department Working Papers 2006-10, University of Oregon Economics Department. Obstfeld, M. and Taylor, A.M. (2004) Global Capital Markets: Integration, Crises And Growth. Cambridge University Press, Cambridge, UK. Peel, D.A. and Taylor, M.P. (2002) Covered Interest Rate Arbitrage In The Inter-War Period And The Keynes-Einzig Conjecture. Journal Of Money, Credit And Banking 34 (Febuary) 51-75. Popper, H. (1993) Long-Term Covered Interest Parity - Evidence From Currency Swaps. Journal Of International Money And Finance 12(4), 439-448. Sarno, L., Valente, G. and Leon, H. (2005) The Forward Bias Puzzle And Nonlinearity In Deviations From Uncovered Interest Parity, A New Perspective. Mimeo, University Of Warwick. Taylor, M.P. (1989) Covered Interest Arbitrage And Market Turbulence, Economic Journal, 99, 376-91. Vieria, I. (2003) Evaluating Capital Mobility In The EU: A New Approach Using Swaps Data. The European Journal Of Finance, 9, 214-232.