Chan, Tze-Haw (2012): Assessing the international parity conditions and transmission mechanism for Malaysia-China.
Download (247kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Assessing the international parity conditions and transmission mechanism for Malaysia-China|
|Keywords:||International Parity Conditions, Economic Integration, Transmission Mechanism, VARX, VECMX|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
|Depositing User:||Tze-Haw Chan|
|Date Deposited:||21 May 2012 17:34|
|Last Modified:||14 Sep 2016 13:47|
Armstrong, S. (2011). China’s participation in the Trans-Pacific Partnership. East Asia Forum. Available at http://www.eastasiaforum.org/2011/12/11/china-participation-in-the-trans-pacific-partnership/#more-23335
Affandi, Y. (2007) A small monetary system for Indonesia: a long run structural approach. Unpublished Ph.D. Thesis, University of Cambridge.
Assenmacher-Wesche, K. and Pesaran, M. H. (2009) A VECX* model of the Swiss economy, Economic Studies, 2009-6, Swiss National Bank.
Awad, M.A. and Goodwin, B.K. (1998) Dynamic Linkages among Real Interest Rates in International Capital Market, Journal of International Money and Finance, 17, pp. 881-907.
Baharumshah, A.Z., Aggarwal, R. and Chan, T.-H. (2007) East Asian Real Exchange Rates and PPP: New Evidence from Panel-data Tests, Global Economic Review, 36(2), pp. 103-119.
Baharumshah, A.Z., Chan, T.-H. and Fountas, S. (2005) A Panel Study on Real Interest Rate Parity in East Asian Countries: Pre- and Post-liberalization Era, Global Finance Journal, 16, pp. 69-85.
Baharumshah, A.Z., Chan, T.-H. and Fountas, S. (2008) Re-examining purchasing power parity for East-Asian currencies: 1976-2002, Applied Financial Economics, 18(1), pp. 75-85.
Baharumshah, A.Z., Chan, T.-H., Masih, M. and Evan L. (2011) Financial Integration of East Asian Economies: Evidence from Real Interest Parity, Applied Economics, 43 (16), pp. 1979-1990
Balassa, Bela. (1961) The Theory of Economic Integration, R.D. Irwin: Homewood, Illinois.
Bhoocha-oom, A. and S. R. Stansell. (1990) A Study of International Financial Market Integration: An Examination of the U.S., Hong Kong and Singapore Markets, Journal of Business Finance & Accounting, 17, pp. 193–211.
Caporale G. M., Kalyvitis S. and Pittis N. (2001) Testing for PPP and UIP in a FIML framework: some evidence for Germany and Japan, Journal of Policy Modeling, 23, pp. 637-650.
Chan, T.-H. and A.Z. Baharumshah (2005) Measuring Capital Mobility in the Pacific Rim, in A. Z. Baharumshah (Ed) Open Economy Macroeconomics in East Asia (Ashgate, UK), pp. 167-195.
Chan, T. H. and A.Z. Baharumshah (2012) Financial Integration between China and Asia Pacific Trading Partners: Parities Evidence from the First- and Second-generation Panel Tests, MPRA Paper 37801, University Library of Munich, Germany.
Chan, T.-H. and C. W. Hooy. (2011) Malaysia-China Trade and Macroeconomic Linkages in the Globalization Era: A VECX* Modeling. Leverhulme Centre for Research on Globalisation and Economic Policy (GEP), International Conference on Globalisation Trends and Cycles: The Asian Experience. University of Nottingham. 12th -13th January.
Chan, T.-H., Chong, L. L. and C. W. Hooy. (2011) Japan-US Real Exchange Rate Behavior: Evidence from Linear and Non-linear Endogenous Break(s) Tests, Asian Academy of Management Journal of Accounting and Finance, 7(1), pp. 95–109.
Chan, T.-H., C. W. Hooy and Baharumshah, A.Z. (2012) A Structural VARX Modeling of International Parities between China and Japan in the Liberalization Era, Economics Bulletin, 32 (1), pp. 730-736.
Chang, Y., J. Y. Park, and K. Song. (2006) Bootstrapping cointegrating regressions, Journal of Econometrics, 133, pp. 703–739.
Chinn, M.D. and Frankel, J.A. (1995) Who Drives Real Interest rates Around the Pacific Rim: the USA or Japan, Journal of International Money and Finance, 14, pp. 801-821.
Corsetti, G., Pesenti, P. and Roubini, N. (1999) What caused the Asian currency and financial crisis? Japan and the World Economy, 11(3), pp. 305-373.
Cumby, R. E. and Mishkin, M. S. (1986) The International Linkage of Real Interest Rates: The European-US Connection, Journal of International Money and Finance, 5, pp. 5-23.
Cumby, R. E. and Obstfeld, M. (1984) International Interest Rate and Price Level Linkages under Flexible Exchange Rates: A Review of Recent Developments, In J. Bilson and R. Marston (eds.) Exchange rates: Theory and Practice, Chicago, University of Chicago Press.
Edison, H.J. (1985) Purchasing Power Parity: A Quantitative Reassessment of the 1920s Experience, Journal of International Money and Finance, 4, pp. 361–372.
Edison, H. J. and Pauls, B. Dianne. (1993) A re-assessment of the relationship between real exchange rates and real interest rates: 1974-1990, Journal of Monetary Economics, 31(2), pp. 165-187.
Eichengreen, B. (2006) On the sequencing of regional integration: General considerations and an application to Asia, The North American Journal of Economics and Finance, 17(3), pp. 329-334.
Eijffinger, S. C. W. and J. J. G. Lemmen. (2002) International Financial Integration: the International Library of Critical Writings in Economics. Cheltenham, UK and Northampton, US.
Engle, R. F. and Granger, C. W. J. (1987) Cointegration and error correction: representation, estimation and testing, Econometrica, 55, pp. 251-276.
Fisher, E. and Park, J. Y. (1991) Testing purchasing power parity under the null hypothesis of cointegration, Economic Journal, 101, pp. 1476-1484.
Frankel, J. A. (1986) International Capital Mobility and Crowding Out in the US Economy: Imperfect Integration of Financial Markets or Goods Markets? In R.W. Hafer (ed.), How Open is the US Economy? Lexington: Lexington Books, pp. 33-67.
Frankel, J. and A. MacArthur. (1988) Political vs. Currency Premia in International Real Interest Differentials: A Study of Forward Rates for 24 Countries, European Economic Review, 32, pp. 1083-1121.
Garratt, A., K. Lee, M. H. Pesaran, and Y. Shin. (2003) A Long Run Structural Macro-econometric Model of the UK, Economic Journal, 113, pp. 412-455.
Garratt, T., K. Lee, M. H. Pesaran, and Y. Shin. (2006) Global and National Macroeconometric Modelling: A Long Run Structural Approach, Oxford: Oxford University Press.
Hakkio, C. S. (1984) A Re-examination of Purchasing Power Parity: A Multi-Country and Multi- Period Study, Journal of International Economics, 17, pp. 265–277.
Johansen, S. (1988) Statistical analysis of cointegration vectors, Journal of Economic Dynamics and Control, 12, pp. 231– 254.
Johansen, S. (1991) Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models, Econometrica, 59(6), pp. 1551–1580.
Johansen, S. and Juselius, K. (1990) Maximum Likelihood Estimation and Inference on Cointegration with Applications to Money Demand, Oxford Bulletin of Economics and Statistics, 52, pp. 169-210.
Johansen, S. and Juselius, K. (1992) Testing Structural Hypotheses in a Multivariate Cointegration Analysis of the PPP and the UIP for UK, Journal of Econometrics, 53, pp. 211 -244.
Juselius, K. (1995) Do purchasing power parity and uncovered interest rate parity hold in the long run? An example of likelihood inference in a multivariate time-series model, Journal of Econometrics, 69, pp. 211-240.
Juselius, K. and MacDonald, R. (2004) International parity relationships between the USA and Japan, Japan and the World Economy, 16, pp. 17-34.
Kirchgassner, G. and Wolters, J. (1993) Does the DM dominate the Euro market? An empirical investigation, Review of Economics and Statistics, 75, pp. 773-778.
Kugler, P. and Lenz, C. (1993) Multivariate cointegration analysis and the long-run validity of PPP, Review of Economics and Statistics, 75, pp. 180–187.
MacDonald, R. (1993) Long-run purchasing power parity: is it for real? Review of Economics and Statistics, 75(4), pp. 690-695.
MacDonald, R. and Marsh, I. W. (1994) On long- and short-run purchasing power parity. In: J. Kaehler, & P. Kugler (Eds.), Econometric analysis of financial markets, Heidelberg, Germany: Physica-Verlag, pp. 23-46.
MacDonald, R. and Moore, M. J. (1994) Long-run purchasing power and structural change, W.P. A/F 94-2, Belfast: The Queen’s University of Belfast.
Makin, J. H. (1997) Two New Paradigms, American Enterprise Institute, (October).
Mantalos, P. and G. Shukur. (1998) Size and power of the error correction model cointegration test. A bootstrap approach, Oxford Bulletin of Economics and Statistics, 60, pp. 249-255.
Mark, N.C. (1990) Real and Nominal Exchange Rates in the Long Run: An Empirical Investigation, Journal of International Economics, 28, pp. 115-36.
McKibbin, W. J. and W. T. Woo. (2003) The Consequences of China's WTO Accession for Its Neighbors, Asian Economic Papers,’ MIT Press, 2(2), pp. 1-38.
Meese, R. A., and K. Rogoff. (1988) Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period, Journal of Finance, 14(4), pp. 933-948.
Mishkin, F. S. (1984) Are Real Interest Rates Equal Across Countries? An Empirical Investigation of International Parity Conditions, The Journal of Finance, 39, pp. 1345-1357.
Modjtahedi, B. (1988) Dynamics of Real Interest Rate Differentials: an Empirical Investigation, European Economic Review, 32, pp. 1191-1211.
Moosa, I. and Bhatti, R.H. (1996) Does Europe have an integrated capital market? Evidence from real interest rate parity test, Applied Economic Letters, 3, pp. 517-520.
Obstfeld, M. and K. Rogoff. (2000) The Six Major Puzzles in International Macroeconomics: Is There a Common Cause? NBER Working Paper 7777.
Pain, D. and Thomas, R. (1997) Real interest rate linkages; Testing got common trends and cycles, Working Paper No. 65, Bank of England.
Park, Y. C. (2011) The Global Financial Crisis: Decoupling of East Asia—Myth or Reality? ADBI Working Paper 289. Tokyo: Asian Development Bank Institute. Available: http://www.adbi.org/working-paper/2011/06/22/4615.gfc.decoupling.east.asia.myth.reality/
Pesaran, M.H. and B. Pesaran. (1997) Working with Microfit 4.0: An interactive econometric software package, Oxford University Press.
Pesaran, M. H. and Y. Shin. (1996) Cointegration and Speed of Convergence to Equilibrium, Journal of Econometrics, 71, pp. 117-143.
Pesaran, M. H. and Y. Shin. (1998) Generalised Impulse Response Analysis in Linear Multivariate Models, Economics Letters, 58(1), pp. 17-29.
Pesaran, M. H., Y. Shin and R. J. Smith. (2000) Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables, Journal of Econometrics, 97, pp. 293-343.
Phylaktis, K. (1997) Capital Market Integration in the Pacific Basin Region: An Analysis of Real Interest Linkages, Pacific–Basin Finance Journal, 5, pp. 195-213.
Phylaktis, K. (1999) Capital market integration in the Pacific Basin region: An impulse response analysis, Journal of International Money and Finance, 18, pp. 267-287.
Pomfret, R. (2005) Sequencing trade and monetary integration: issues and application to Asia, Journal of Asian Economics, 16(1), pp. 105-124.
Rogoff, K. (1996) The purchasing power parity puzzle, Journal of Economic Literature, 34, pp. 647-668.
Sjoo, B. (1995) Foreign transmission effects in Sweden: do PPP and UIP hold in the long run? Advances in International Banking and Finance, 1, pp. 129-149.
Sun, L. (2004) Measuring time-varying capital mobility in East Asia, China Economic Review, 15, pp. 281-291.
Taylor, M. P. (1988) An empirical examination of long-run purchasing power parity using cointegration techniques, Applied Economics, 20, pp. 1369-1382.
Taylor, A. M. and Taylor, M.P. (2004) The purchasing power parity debate, NBER Working Paper, No. 10607.
The Economist (various issues), Big Mac index, available online http://www.economist.com/node/17257797?story_id=17257797&CFID=163214234&CFTOKEN=64541760
Wang, V. Wei-cheng. (2005) The Logic of China-ASEAN FTA: Economic Stagecraft of Peaceful Ascendancy. in: Ho Khai Leong and Samuel C. Y. Ku (eds). China and Southeast Asia: Global Changes and Regional Challenges, Singapore: Institute of Southeast Asian Studies.
Zivot, E. and 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, pp. 251-270.