Dynamic Financial Linkages of Japan And Asean Economies: An Application of Real Interest Parity

Abstract

the authenticity of real interest parity (RIP), this study provides empirical evidences she dynamic linkages of real interest rates among ASEAN-S and the mean reversion real interest differentials of ASEAN-S.vis-d-vis Japan during the post liberalization ). The upshots of our findings are four-fold. First, there were co-movement of rates in the long run and dynamic causalities in the short run, which explicitly monetary inter-dependency among the ASEAN tigers. Second, most of the forecast of real interest rates in own country can be attributed to other ASEAN-4s more than 50%), which partly explain the contagion effects during Asia crisis 1997/ he real interest differentials are mean reverting over time, implying that RIP holds and ASEAN (except Singapore). Forth, the half-lives are reported at approximately menshs, which reflect the considerably small deviations from RIP. All together, the towards regional financial integration with the Japan's leading role being To great extent, this would support the recent proposal of Currency Union with em taken as common currency.