Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates

Abstract

We study the long-run relationship of real exchanges rates (RERs) among the ASEAN-5 countries by testing the theory of Generalized Purchasing Power Parity (G-PPP) from the new perspective of fractional cointegration. The long-run co-movements of the RERs are examined by applying a recent estimator of fractional cointegration that consists of a frequency Whittle approximation of the cointegrating system's likelihood function. The contribution of the fractional cointegration study is justified by identifying several weak fractional cointegration relationships that signal that deviations of RERs from their long-run equilibrium are highly persistent. These findings contrast with all previous studies that restrict their investigation to the traditional I(1)/I(0) cointegration. Our results support further monetary integration among different sub-groups of the ASEAN-5 countries as they share long-run comovements with each others. However, a full-fledged monetary union embracing all ASEAN-5 members is still limited from the perspective of the G-PPP theory.

Fundamental and behavioural determinants of stock return volatility in ASEAN-5 countries

“…Goh et al (2005) look at the intertemporal linkages of the ASEAN-5 stock markets in response to the Asian financial crisis using stock indices, and their findings suggest that ASEAN-5 underwent a structural change after mid-1997, caused by the Asian financial crisis when Indonesia led the movements. In a similar line, Lim (2009) suggests the level of the integration and interdependence of the ASEAN-5 markets increased after the 1997 Asian financial crisis; and Truchis and Keddad (2013) add to evidence that the ASEAN-5 turn to more integrated after the 1997 Asian financial crisis because of equilibrium errors responding more rapidly to the shocks. Truchis and Keddad (2016) examine perceived commonality in volatility movements to assess the performance of financial and regulatory activities and suggest that a global integration process drives the most developed markets of the region while emerging markets are less affected.…”

“…Lim ( 2009) also look at whether ASEAN-5 stock markets have correlations and long-run relationships between 1990 and 2008 and reveal signs of converging and integration after the 1997 Asian financial crisis. Truchis and Keddad (2013) find ASEAN-5's monetary integration by examining generalised purchasing power parity and support further monetary integration as ASEAN-5 share long-term co-movements. These studies explore the stock market integration of ASEAN-5 from different angles; however, none of them is done from the perspective of how fundamental and behavioural factors influence stock return volatility.…”

Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence

“…More recent studies have employed fractional integration and cointegration to analyse OCAs (see, e.g. De Truchis and Keddad, 2013 for the case of the ASEAN economies). In the present paper, we carry out for the first time this type of analysis for the EAC and employ, among others, the recently introduced Fractionally Cointegrated Vector AutoRegressive (FCVAR) approach proposed by Johansen and Nielsen (2012).…”

Is Economic Development Promoting Monetary Integration in East Asia?

“…1 Recently, there are several empirical studies to investigate the OCA issue to employ the G-PPP approach, such as Wilson and Choy (2007) [9], Sun and Sinons (2011) [10], and de Truchis and Keddad (2013) [11]. Especially, Keddad (2013) [12] has investigated this issue considering applying the Asian currency baskets.…”