Working Paper
Who drives real interest rates around the Pacific Rim: the US or Japan?
Abstract: This paper investigates the relative influence of US and Japanese real interest rates in the determination of local Pacific Rim rates, where influence is defined by the presence of common stochastic trends. Furthermore, the degree to which long run real interest parity holds is examined. The cointegration testing methodology of Johansen (1988) is adopted for this analysis, which allows for multiple cointegrating vectors. The results indicate that Hong Kong, Malaysia and Taiwan are linked with both the US and Japan (in terms of cointegration and positive covariation), while only Singapore is solely linked with the US. On the other hand Korea, and perhaps Indonesia and Thailand appear to be more closely linked with Japan. Real interest parity holds for only the following interest rate pairs: US-Singapore, US-Taiwan and Japan-Taiwan.
Keywords: Pacific Area; Japan; Interest rates;
Status: Published in Journal of International Money and Finance, December 1995, v. 14, iss. 6, pp. 801-21
Authors
Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: Pacific Basin Working Paper Series
Publication Date: 1995
Number: 95-02