Measuring Regional Market Integration by Dynamic Factor Error Correction Model (DF-ECM) Approach - The Case of Developing Asia

Duo Qin, Marie Anne Cagas, Geoffrey Ducanes, Nedelyn Magtibay-Ramos and Pilipinas F. Quising
Additional contact information
Marie Anne Cagas: University of the Philippines
Nedelyn Magtibay-Ramos: Asian Development Bank
Pilipinas F. Quising: Asian Development Bank

No 565, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: This paper examines empirically the dynamic process of regional market integration for twelve individual Asian economies by a new modeling approach, which combines DF with ECM. This new approach enables us to obtain latent regional dynamic factors, which correspond well with the 'foreign' parity variables in theory when market is imperfectly integrated and which act, in explaining domestic short-run price adjustments, as leading-indicators in an error-correction form. The power of the DF-ECM approach is illustrated in its application to measuring market integration in the developing Asian region using monthly data of the past decade.

Keywords: Law of one price; Market integration; Dynamic factor; Error-correction model (search for similar items in EconPapers)
JEL-codes: C22 C33 F15 F31 F40 (search for similar items in EconPapers)
Date: 2006-09-01
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Citations: View citations in EconPapers (2)

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Working Paper: Measuring Regional Market Integration by Dynamic Factor Error Correction Model (DF-ECM) Approach: The Case of Developing Asia (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:565

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