IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-11-00438.html
   My bibliography  Save this article

A structural VARX modelling of international parities between China and Japan in the liberalization era

Author

Listed:
  • Tze-Haw Chan

    (School of Management, Universiti Sains Malaysia)

  • Chee-Wooi Hooy

    (School of Management, Universiti Sains Malaysia)

  • Ahmad Zubaidi Baharumshah

    (Faculty of Economics and Management, Universiti Putra Malaysia)

Abstract

This study systemically investigates the international parity conditions for China and Japan in the liberalization era (1990:Q1-2010:Q2). Advanced econometric procedures including the structural VARX and persistent profiles are utilized in the empirical analysis. The finding upholds support for both purchasing power (PPP) and uncovered interest parity (UIP) conditions, when structural breaks due to the Asian and subprime crises were taken into accounts. By comparing the persistent profiles, we find shocks to real sector are more likely to lead to the establishment of parity at faster rate than capital market. This seems to suggest sequencing problem in market integration is not an issue.

Suggested Citation

  • Tze-Haw Chan & Chee-Wooi Hooy & Ahmad Zubaidi Baharumshah, 2012. "A structural VARX modelling of international parities between China and Japan in the liberalization era," Economics Bulletin, AccessEcon, vol. 32(1), pages 730-736.
    • Handle: RePEc:ebl:ecbull:eb-11-00438
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P67.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. C. Emre Alper & Oya Pinar Ardic & Salih Fendoglu, 2009. "The Economics Of The Uncovered Interest Parity Condition For Emerging Markets," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 115-138, February.
    2. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
    3. Ahmad Zubaidi Baharumshah & Raj Aggarwal & Chan Tze Haw, 2007. "East Asian Real Exchange Rates and PPP: New Evidence from Panel-data Tests," Global Economic Review, Taylor & Francis Journals, vol. 36(2), pages 103-119.
    4. Cheung, Yin-Wong & Chinn, Menzie David & Fujii, Eiji, 2003. "China, Hong Kong, and Taiwan: A Quantitative Assessment of Real and Financial Integration," Santa Cruz Department of Economics, Working Paper Series qt13d9m8jv, Department of Economics, UC Santa Cruz.
    5. Richard Pomfret, 2005. "Sequencing Trade and Monetary Integration," Others 0502004, University Library of Munich, Germany.
    6. Juselius, Katarina, 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, Elsevier, vol. 69(1), pages 211-240, September.
    7. C. Emre Alper & Oya Pinar Ardic, 2010. "covered interest parity," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    8. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2003. "China, Hong Kong, and Taiwan: A quantitative assessment of real and financial integration," China Economic Review, Elsevier, vol. 14(3), pages 281-303.
    9. Pomfret, Richard, 2005. "Sequencing trade and monetary integration: issues and application to Asia," Journal of Asian Economics, Elsevier, vol. 16(1), pages 105-124, February.
    10. M. Ege Yazgan, 2003. "The purchasing power parity hypothesis for a high inflation country: a re-examination of the case of Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 10(3), pages 143-147.
    11. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
    12. Eichengreen, Barry, 2006. "On the sequencing of regional integration: General considerations and an application to Asia," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 329-334, December.
    13. Reza Siregar & Ramkishen Rajan & Tony Cavoli, 2004. "A Survey of Financial Integration in East Asia; How Far? How Much Further to Go?," Centre for International Economic Studies Working Papers 2004-01, University of Adelaide, Centre for International Economic Studies.
    14. Coudert, Virginie & Couharde, Cecile, 2007. "Real equilibrium exchange rate in China is the renminbi undervalued?," Journal of Asian Economics, Elsevier, vol. 18(4), pages 568-594, August.
    15. Joseph Kargbo, 2009. "Financial integration and parity reversion in real exchange rates of emerging markets," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 29-33.
    16. Virginie Coudert & Cécile Couharde, 2005. "Real Equilibrium Exchange Rate in China," Working Papers 2005-01, CEPII research center.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chan, Tze-Haw & Baharumshah, Ahmad Zubaidi, 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.
    2. Chan, Tze-Haw, 2012. "Assessing the international parity conditions and transmission mechanism for Malaysia-China," MPRA Paper 38930, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chan, Tze-Haw, 2011. "A structural modeling of exchange rate, prices and interest rates between Malaysia-China in the liberalization era," MPRA Paper 32955, University Library of Munich, Germany.
    2. Chan, Tze-Haw, 2012. "Assessing the international parity conditions and transmission mechanism for Malaysia-China," MPRA Paper 38930, University Library of Munich, Germany.
    3. Chan, Tze-Haw & Baharumshah, Ahmad Zubaidi, 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.
    4. Cavoli, Tony, 2012. "Exploring dimensions of regional economic integration in East Asia: More than the sum of its parts?," Journal of Asian Economics, Elsevier, vol. 23(6), pages 643-653.
    5. J. M. Gil & M. BenKaabia & H. E. Chebbi, 2009. "Macroeconomics and agriculture in Tunisia," Applied Economics, Taylor & Francis Journals, vol. 41(1), pages 105-124.
    6. Andy Wui-Wing Cheng & Nikolai Sheung-Chi Chow & David Kam-Hung Chui & Wing-Keung Wong, 2019. "The Three Musketeers Relationships between Hong Kong, Shanghai and Shenzhen Before and After Shanghai–Hong Kong Stock Connect," Sustainability, MDPI, vol. 11(14), pages 1-20, July.
    7. Levent, Korap, 2007. "Modeling purchasing power parity using co-integration: evidence from Turkey," MPRA Paper 19584, University Library of Munich, Germany.
    8. Cashin, Paul & Mohaddes, Kamiar & Raissi, Mehdi, 2017. "China's slowdown and global financial market volatility: Is world growth losing out?," Emerging Markets Review, Elsevier, vol. 31(C), pages 164-175.
    9. Milas Costas & Legrenzi Gabriella, 2006. "Non-linear Real Exchange Rate Effects in the UK Labour Market," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 10(1), pages 1-34, March.
    10. Cashin, Paul & Mohaddes, Kamiar & Raissi, Maziar & Raissi, Mehdi, 2014. "The differential effects of oil demand and supply shocks on the global economy," Energy Economics, Elsevier, vol. 44(C), pages 113-134.
    11. Yin‐Wong Cheung & XingWang Qian, 2010. "Capital Flight: China's Experience," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 227-247, May.
    12. Hondroyiannis, George & Lolos, Sarantis & Papapetrou, Evangelia, 2005. "Financial markets and economic growth in Greece, 1986-1999," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 173-188, April.
    13. Groenewold, Nicolaas & He, Lei, 2007. "The US-China trade imbalance: Will revaluing the RMB help (much)?," Economics Letters, Elsevier, vol. 96(1), pages 127-132, July.
    14. Xu, T.T., 2012. "The role of credit in international business cycles," Cambridge Working Papers in Economics 1202, Faculty of Economics, University of Cambridge.
    15. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    16. Faria, João Ricardo & Mollick, André Varella & Albuquerque, Pedro H. & León-Ledesma, Miguel A., 2009. "The effect of oil price on China's exports," China Economic Review, Elsevier, vol. 20(4), pages 793-805, December.
    17. Konstantins Benkovskis & Julia Wörz, 2016. "Non-price competitiveness of exports from emerging countries," Empirical Economics, Springer, vol. 51(2), pages 707-735, September.
    18. John Ryan, 2006. "Reforming China�s Exchange Rate Policy," Working Papers 2006_51, Department of Economics, University of Venice "Ca' Foscari".
    19. Alexander Chudik & M. Hashem Pesaran, 2016. "Theory And Practice Of Gvar Modelling," Journal of Economic Surveys, Wiley Blackwell, vol. 30(1), pages 165-197, February.
    20. Meixing Dai, 2013. "In search of an optimal strategy for yuan’s real revaluation," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 11(1), pages 29-46, February.

    More about this item

    Keywords

    International Parity Conditions; Market Integration; Structural VARX Modelling; Bootstrapping;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-11-00438. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.