Kate Phylaktis

Capital market integration in the Pacific Basin region: an impulse response analysis

Abstract We examine the extent of capital market integration in a group of Pacific Basin countries following the deregulation of their markets, and explore whether the financial influence of Japan in the region has overtaken that of the US. Looking at long-run comovements of real interest rates through the use of cointegration, and using impulse response analysis to examine the speed of adjustment of real interest rates to long-run equilibrium following a shock in one of the markets, which is another indicator of the degree of capital market integration, we find that these countries are closely linked with world financial markets and more so with Japan than with US.

Measuring Financial and Economic Integration with Equity Prices in Emerging Markets

This paper examines real and financial links simultaneously at the regional and global level for a group of Pacific-Basin countries by analysing the covariance of excess returns on national stock markets over the period 1980–1998. We find overwhelming evidence at the regional and global level and for all sub-periods that financial integration is accompanied by economic integration. This seems to suggest that economic integration provides a channel for financial integration, which explains, at least partly, the high degree of financial integration found in this study and in other studies for this region even in the presence of foreign exchange controls. This result has important implications for the use of restrictions to isolate capital markets from world influences.  2002 Elsevier Science Ltd. All rights reserved. JEL classification: F36; G15

Does the real exchange rate follow a random walk? The Pacific Basin perspective

Abstract In this paper we present evidence that dispels the view that PPP has broken down during the 1970s and 1980s. Evidence from unit root tests of the real exchange rate indicate that PPP held as a long-run equilibrium condition for eight Pacific Basin countries over the period 1974 to 1987. In contrast, we find the nominal exchange rates to be non-stationary. Additional evidence, however, shows that strong trend components bind the nominal exchange rates of that set of countries together. (JEL F31).

Price Limits and Stock Market Volatility in the Athens Stock Exchange

In this paper, we examine the effects of price limits on the stock volatility in ASE. We put forward two hypotheses, the information hypothesis, which implies that price limits only slow down the process of adjustment and have no effect on stock volatility; and the overreaction hypothesis, which assumes that investors tend to overreact to new information, so that price limits give them time to reassess the information and reduce stock volatility. Our results show strong support for the information hypothesis. This evidence is obtained by performing the tests on ten stocks, which include heavily traded stocks as well as less active stocks covering a variety of industries, and on a market wide price index. The results are also robust to the frequency of the measurement of the returns, and to the tightness of the limits.

Money Demand, the Cagan Model and the Inflation Tax: Some Latin American Evidence

This paper examines the demand for money under conditions of very high inflation in Argentina, Bolivia, Brazil, Chi le, and Peru during the 1970s and 1980s. The authors test whether the monetary and inflationary experiences of these countries can be adequately characterized by the Cagan (1956) model, using an econometric procedure that is not reliant on any particular assumpti on concerning expectations formation except that forecasting errors are stationary. The authors also examine the importance of foreign asset substitution in domestic portfolios and the hypothesis that monetary policy was tantamount to maximization of the inflation tax revenue before testing the rational expectations hypothesis. Copyright 1993 by MIT Press.

Capital Market Integration in the Pacific Basin Region: An Analysis of Real Interest Rate Linkages

This paper investigates the extent to which financial markets in the Pacific Basin Region have become more integrated, by analyzing the comovements of real interest rates. The paper uses cointegration and error correction models and draws inferences on the degree of capital market integration by looking at the speed of adjustment of real interest rates following a shock. The results show that there has been an increase in capital market integration with both U.S. and Japan during the 1980s. Japan has not, however, overtaken U.S. in dominating the financial markets of these countries, except possibly in the case of Malaysia. Capital market integration is found to be greater in Singapore, Hong Kong and Taiwan Province of China. On the other hand, Japan is the least integrated country with the United States.

The black market for dollars in Chile

Abstract This study investigates the effects of foreign exchange restrictions on the black market premium for dollars in Chile over the period 1975–1984. The model emphasises the interaction of stock and flow conditions in the black market for dollars. Our results support the view that the real exchange rate, the official depreciation-adjusted interest rate differential, the dollar value of peso assets valued at the official exchange rate, and foreign exchange restrictions are important determinants of the black market premium.

Black and official exchange rates in the Pacific Basin countries: an analysis of their long-run dynamics

This paper examines the long-run dynamic relationship between black and official markets for seven Pacific Basin countries over the period 1974 to 1989. The evidence shows a long-run unit proportionality between the two rates, i.e. a constant long-run black-market premium. When the premium deviates from its long-run value, the black-market rate adjusts to eliminates the division. The speed of adjustment varies and seems to depend on the financial development of the country. Finally, there is evidence of weak-form informational inefficiency in the black markets.

Foreign exchange markets in transition economies: China

Abstract The purpose of the paper is to examine the behaviour of exchange rates in China during the recent period of trade and exchange system reforms. A simple theoretical model based on the monetary approach is developed to explain the exchange rate in the parallel or black market, given the official and substantially controlled rate. The model is tested on quarterly data using the cointegration technique, error correction modeling and impulse response analysis. The results confirm the main features of the model and have policy implications concerning the use of devaluation and monetary policy for stimulating the economy, and the adoption of policies, which encourage black market activities.

The fisher hypothesis: Evidence from three high inflation economies

ConclusionsIn this paper, we have found strong evidence for a long-run unit proportional relationship between nominal interest rates and anticipated inflation for three high inflation economies (Argentina, Brazil and Mexico). These results contrast with the mixed evidence found for low inflation economies. We also found that for those three countries, as well as for the United States and Australia, the speed of adjustment of interest rates to inflationary shocks does not appear to depend directly on the absolute level of the inflation rate or any measure of inflation rate volatility.