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Financial integration via panel cointegration approaches in ASEAN+5

Najla Shafighi (Department of Economics, National University of Malaysia, Bangi, Malaysia)
Abu Hassan Shaari (Department of Economics, National University of Malaysia, Bangi, Malaysia)
Behrooz Gharleghi (Centre for the Socio-Economic of Aging (CSEA), Asia Pacific University of Technology and Innovation, Kuala Lumpur, Malaysia)
Tamat Sarmidi (School of Economics, National University of Malaysia, Bangi, Malaysia)
Khairuddin Omar (Department of Computer Science, National University of Malaysia, Bangi, Malaysia)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 11 January 2016

649

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.

Keywords

Citation

Shafighi, N., Shaari, A.H., Gharleghi, B., Sarmidi, T. and Omar, K. (2016), "Financial integration via panel cointegration approaches in ASEAN+5", Journal of Economic Studies, Vol. 43 No. 1, pp. 2-15. https://doi.org/10.1108/JES-08-2014-0141

Publisher

:

Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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