Financial Integration in Money Markets: Evidence from SAARC Region

Rafay, A. & Farid, S. (2017). Financial Integration in Money Markets: Evidence from SAARC Region. DLSU Business and Economics Review, 25(2), 87-114.

28 Pages Posted: 10 May 2017

See all articles by Abdul Rafay

Abdul Rafay

University of Management & Technology (UMT), Pakistan

Saqib Farid

University of Management and Technology (UMT), Pakistan

Date Written: February 1, 2017

Abstract

The primary purpose of the study was to investigate the extent of financial integration between the four major money markets (Pakistan, India, Sri Lanka, and Bangladesh) in the SAARC region. To determine the association between these money markets, this study deployed variety of robust time series techniques such as JJ Co-integration Test, Granger Causality Test, Impulse Response Functions (IRF), and Variance Decomposition Analysis (VDC). Monthly data for the period 2007-2015 was utilized for the data analysis whereas Call Money rates and Interbank rates were used as proxies of money markets. The empirical findings confirmed the presence of long term relationship between the nominal interest rates in SAARC region. Additionally, the results also unveiled the existence of bi-directional causal relationship between the money markets of Pakistan, India, and Sri Lanka. It was also found that Bangladesh’s money market is most rigid and unresponsive to other market in the region. This study also confirmed the existence of robust ingredients for formulation of a monetary union in the SAARC region.

Keywords: Interest rates, SAARC, Money Markets, Monetary Union, Co-integration, IRF, VDC

JEL Classification: C21, E43, E44, E51, F15, O42

Suggested Citation

Rafay, Abdul and Farid, Saqib, Financial Integration in Money Markets: Evidence from SAARC Region (February 1, 2017). Rafay, A. & Farid, S. (2017). Financial Integration in Money Markets: Evidence from SAARC Region. DLSU Business and Economics Review, 25(2), 87-114. . Available at SSRN: https://ssrn.com/abstract=2897424

Abdul Rafay (Contact Author)

University of Management & Technology (UMT), Pakistan ( email )

C-II
Johar Town
Lahore, Punjab 54770
Pakistan
924235212801-10 (Phone)

HOME PAGE: http://www.umt.edu.pk

Saqib Farid

University of Management and Technology (UMT), Pakistan ( email )

C-II
Lahore, Punjab 54770
Pakistan

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