Real and Financial Interdependencies: New Evidence for Asia, Eastern Europe and Latin America
Posted: 29 Jun 2010
Date Written: April 6, 2009
Recent empirical research has emphasised the importance of regional contagion in explaining both the timing and severity of currency crises. In this paper we employ recently developed panel cointegration methods together with Granger causality tests to examine real and financial interrelationships among 19 emerging open economies over the period 2000-2008. We identify a cointegrated system of real and financial variables, including exchange rate volatility, and find strong evidence of cross-country real and financial interdependencies within Asia, Eastern Europe and Latin America, as well as for the panel as a whole.
Keywords: Cointegration, Contagion, Currency crises, Interdependency
JEL Classification: F31, F41, C22, C23
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