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.

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.

• Item Type: MPRA Paper
• Language: English
• 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

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