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Does Financial or Trade Integration Cause Instability? Evidence from Emerging and ASEAN Economies

Rakesh Padhan and K P Prabheesh
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Rakesh Padhan: Department of Management Studies, Indian Institute of Technology Roorkee, Uttarakhand, India.

No DP-2023-18, Working Papers from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: This study empirically examines the nexus amongst financial integration, trade integration, and instability in various emerging and Association of Southeast Asian Nations (ASEAN) economies. Using newly constructed financial integration indices and the Toda-Yamamoto causality test, it is found that (i) tremendous changes occurred in the levels of financial and trade integration in these economies during the COVID-19 pandemic; (ii) in most cases, financial integration caused exchange rate volatility, inflation volatility, and interest rate volatility, while trade integration caused credit volatility, exchange rate volatility, and growth volatility; and (iii) not all types of integration caused instability, and portfolio integration caused exchange rate instability in most cases.

Keywords: Financial Integration; Trade Integration; Instability; Toda-Yamamoto Causality Test (search for similar items in EconPapers)
JEL-codes: F20 F21 F41 F65 (search for similar items in EconPapers)
Date: 2023-11-29
New Economics Papers: this item is included in nep-fdg, nep-int and nep-sea
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