INTERNATIONAL FINANCIAL INTEGRATION AND REAL EXCHANGE RATE LONG-RUN DYNAMICS IN EMERGING COUNTRIES

Christophe Rault, Guglielmo Maria Caporale and Thouraya HADJ Amor

No wp970, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out "second-generation" tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries

Keywords: emerging economies; real exchange rate; financial integration; misalignment; second-generation panel unit-root and cointegration tests (search for similar items in EconPapers)
JEL-codes: C15 E31 F0 F31 (search for similar items in EconPapers)
Pages: pages
Date: 2009-09-01
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-opm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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