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Financial Integration in Asia: A Systemic View on Currency Markets*

Dayong Zhang (), Wanli Zhao (), Fei Wu () and Qiang Ji ()
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Fei Wu: Department of Economics University of Birmingham Edgbaston, Birmingham, UK, B15 2TT

Asian Economic Papers, 2020, vol. 19, issue 2, 41-58

Abstract: Using a systemic approach, this study investigates the time-varying linkages among currency markets of Japan, the People's Republic of China, the Republic of Korea, and the five core ASEAN economies to understand financial integration in Asia. We first construct a vector autoregressive model and use the Diebold and Yilmaz (2014) approach to quantitatively identify the connectedness within the system, accompanied by a rolling-window approach to allow for time-varying dynamics and pairwise Granger causality tests to check the robustness of our main results. We find that though systemic interconnectedness varies over time, the Singapore dollar is constantly a top net contributor, explaining most of the variation in East Asian currency markets.

Date: 2020
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