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Financial Integration in Emerging Market Economies

Author

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  • Pasricha, Gurnain
Abstract
This paper analyzes the de-facto integration in some Emerging Market Economies based on behavior of deviations from Covered Interest Parities in the last 10 years. It tests for modified market efficiency conditions in the presence of real world frictions and arrives at a single measure of de-facto integration for some Emerging Market Economies in the post-globalization era. An Asymmetric Self Exciting Threshold Autoregressive model (SETAR) is used to estimate bands of speculative inaction. Market efficiency requires the thresholds to be no wider than the transaction costs and the deviations to follow a stationary process outside the chosen bands. The analysis reveals a much more efficient financial market than has been allowed for in previous studies. The estimates of thresholds for emerging markets follow the pattern expected, given information on de-jure restrictions. Based on the estimated model, the paper constructs an index of de-facto integration and we find that Phillipines and India are the highest ranked amongst emerging markets in terms of their financial integration, and that Malaysia and Thailand occupy the lowest spot.

Suggested Citation

  • Pasricha, Gurnain, 2007. "Financial Integration in Emerging Market Economies," MPRA Paper 5278, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:5278
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    Cited by:

    1. Pasricha, Gurnain Kaur, 2008. "Imperfect Competition in Financial Markets and Capital Controls: A Model and a Test," MPRA Paper 12125, University Library of Munich, Germany.
    2. Gurnain Kaur Pasricha, 2009. "Bank Competition and International Financial Integration:Evidence Using a New Index," Working Papers 242009, Hong Kong Institute for Monetary Research.
    3. Hutchison, Michael & Kendall, Jake & Pasricha, Gurnain & Singh, Nirvikar, 2009. "Indian capital control liberalization: Evidence from NDF markets," Working Papers 09/60, National Institute of Public Finance and Policy.
    4. Michael M Hutchison & Gurnain Kaur Pasricha & Nirvikar Singh, 2012. "Effectiveness of Capital Controls in India: Evidence from the Offshore NDF Market," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(3), pages 395-438, September.
    5. Mr. Ananthakrishnan Prasad & Mr. Charles Frederick Kramer & Ms. Hélène Poirson, 2008. "Challenges to Monetary Policy from Financial Globalization: The Case of India," IMF Working Papers 2008/131, International Monetary Fund.
    6. Olesia Kozlova, 2013. "Forward-Rate Bias, Imperfect Knowledge, and Risk: Evidence from Developed and Developing Countries," 2013 Papers pko627, Job Market Papers.

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    More about this item

    Keywords

    Covered Interest Parity; Financial Integration; Integration Index; TAR;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F30 - International Economics - - International Finance - - - General
    • F3 - International Economics - - International Finance

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