A quantitative assessment of real and financial integration in China - the Markov switching approach

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Abstract

In this paper, we use the newly developed Markov switching unit root test to examine the status of the real and financial integration of China, Japan, the European Union and the United States based on the empirical validity of real interest parity, uncovered interest parity and relative purchasing power parity. We find strong evidence in favour of those parity conditions and hence conclude that real and financial integration between China and the other four countries is well established.

Original languageEnglish
Pages (from-to)121-133
Number of pages13
JournalInternational Research Journal of Finance and Economics
Volume39
Publication statusPublished - 1 May 2010
Externally publishedYes

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Markov switching
Financial integration
China
European Union
Real interest parity
Parity
Japan
Purchasing power parity
Unit root tests
Uncovered interest parity

Cite this

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title = "A quantitative assessment of real and financial integration in China - the Markov switching approach",
abstract = "In this paper, we use the newly developed Markov switching unit root test to examine the status of the real and financial integration of China, Japan, the European Union and the United States based on the empirical validity of real interest parity, uncovered interest parity and relative purchasing power parity. We find strong evidence in favour of those parity conditions and hence conclude that real and financial integration between China and the other four countries is well established.",
keywords = "Capital mobility, Exchange rates, Market integration, Monte carlo simulation, Purchasing power parity, Real interest parity, Regime switch, Uncovered interest parity, Unit root test",
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AB - In this paper, we use the newly developed Markov switching unit root test to examine the status of the real and financial integration of China, Japan, the European Union and the United States based on the empirical validity of real interest parity, uncovered interest parity and relative purchasing power parity. We find strong evidence in favour of those parity conditions and hence conclude that real and financial integration between China and the other four countries is well established.

KW - Capital mobility

KW - Exchange rates

KW - Market integration

KW - Monte carlo simulation

KW - Purchasing power parity

KW - Real interest parity

KW - Regime switch

KW - Uncovered interest parity

KW - Unit root test

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