Financial integration via panel cointegration approaches in ASEAN+5

Najla Shafighi, Abu Hassan Shaari Md Nor, Behrooz Gharleghi, Tamat Sarmidi, Khairuddin Omar

Research output: Contribution to journalArticle

Abstract

Purpose – The purpose of this paper is to identify whether any financial integration exists among ASEAN+5 members and some East Asian countries, including China, Japan, Korea, Hong Kong, and Taiwan, through interest rate, exchange rate, level of prices, and real output. Design/methodology/approach – Therefore, the authors intend to identify any long-term relationship among these variables utilizing the data in the most efficient manner via panel cointegration and panel unit root tests. The study likewise uses a panel-based vector error correction (panel-vec) model for comparison and also short-run relationship analysis. The long-run relationship is estimated using dynamic ordinary least square technique and a panel multi-layer perceptron (MLP) neural network. Findings – For the ten countries under consideration, the empirical result supports the long-run equilibrium relationship among real output, exchange rate, interest rate, and level of prices, and that the cointegration relationship implies unidirectional causality from exchange rate to real output. This result is favorable to a model that contains real output as a dependent variable and exchange rate, interest rate, and level of prices as explanatory variables. Panel-vec results indicate no evidence of short-run causality from exchange rate to real output. Furthermore, the comparison result of long-run equation estimation shows the superiority of neural networks over econometric models. Originality/value – This paper adds to the literature by examining the financial cointegration using a panel model that contains real exchange rate, interest rate, real output, and inflation rate in ASEAN+5. Additionally this paper applied the MLP neural network to yield a robust estimation of the long-run equation obtained among the variables.

Original languageEnglish
Pages (from-to)2-15
Number of pages14
JournalJournal of Economic Studies
Volume43
Issue number1
DOIs
Publication statusPublished - 11 Jan 2016

Fingerprint

Panel cointegration
Financial integration
Real output
Exchange rates
Interest rates
Neural networks
Cointegration
Causality
Short-run
Japan
Econometric models
Ordinary least squares
Long-term relationships
Hong Kong
Robust estimation
Real exchange rate
Empirical results
Design methodology
China
Long-run equilibrium

Keywords

  • DOLS
  • Panel cointegration
  • Panel unit root
  • Panel-MLP
  • Panel-vec

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

Financial integration via panel cointegration approaches in ASEAN+5. / Shafighi, Najla; Md Nor, Abu Hassan Shaari; Gharleghi, Behrooz; Sarmidi, Tamat; Omar, Khairuddin.

In: Journal of Economic Studies, Vol. 43, No. 1, 11.01.2016, p. 2-15.

Research output: Contribution to journalArticle

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