Assessing the international parity conditions and transmission mechanism for Malaysia-China

Tze-Haw Chan ()

MPRA Paper from University Library of Munich, Germany

Abstract: We construct a structural system that jointly examines Purchasing Power and Interest Parity conditions for Malaysia-China during 1996Q1-2010Q4. Structural VARX, VECMX, over-identifying restrictions, bootstrapping and persistent profiles are utilized in the analyses. We find support for interaction between the goods and capital markets of Malaysia-China, when Asia crisis and subprime crisis are taken into accounts. The faster pace of adjustment towards price instead of interest equilibrium implies the non-appearance of sequencing problem in economic integration. Nevertheless, it is of concern that maintaining a rigid foreign exchange with major trading partner could be costly with potentially contagious price instability and financial risk.

Keywords: International Parity Conditions; Economic Integration; Transmission Mechanism; VARX; VECMX (search for similar items in EconPapers)
JEL-codes: C51 F36 F42 (search for similar items in EconPapers)
Date: 2012-05-21
New Economics Papers: this item is included in nep-sea
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