International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence

Guglielmo Maria Caporale (), Thouraya Hadj Amor () and Christophe Rault ()

No CESifo Working Paper No. 2819, CESifo Working Paper Series from CESifo Group Munich

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 F00 F31 (search for similar items in EconPapers)
Date: 2009

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Related works:
Working Paper: International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence (2009)
Working Paper: International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence (2009)
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