EconPapers    
Economics at your fingertips  
 

Financial integration in the pacific basin region: RIP by PANIC attack?

Somchai Amornthum and Carl Bonham

Journal of International Money and Finance, 2011, vol. 30, issue 6, 1019-1033

Abstract: We exploit advances in panel data econometrics to test whether real interest parity holds in the Pacific Basin region. We test for a unit root in the difference between either the US, Japanese or Euro area real interest rate and the real interest rates from a panel of eleven Pacific Basin economies. Unlike extant studies that test for RIP using panel data, we use Bai and Ng's (2004) PANIC test which allows for a very general model of cross-section dependence, including the possibility of cross-unit cointegration. Ignoring the possibility of cross-unit cointegration can lead to severe size distortions and to an over-rejection of the null hypothesis of a unit root. We overturn earlier findings based on first-generation panel tests, and demonstrate that cross-unit cointegration leads to incorrect conclusions. We find that RIP holds in the Pacific region. Real interest rates converge to the US rate. We find no support for the hypothesis that Pacific Basin real interest rates converge to either the Japanese or Euro area rates.

Keywords: Real; interest; parity; Pacific-basin; capital; market; integration; Panel; unit; root; PANIC (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560611000751
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Financial Integration in the Pacific Basin Region: RIP by PANIC Attack? (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:30:y:2011:i:6:p:1019-1033

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).

 
Page updated 2024-12-28
Handle: RePEc:eee:jimfin:v:30:y:2011:i:6:p:1019-1033