Essays on East Asian capital markets: Integration and implications for economic activity.

摘要

This dissertation assesses two important aspects of capital markets in East Asia: (a) financial integration and its volatility and (b) feasibility of forming an optimum currency area.; The first aspect focuses on the impact of the financial regime on real activity. It examines the evidence on saving-investment correlations and the covered interest parity conditions to gauge the degree of financial integration in eight East Asia emerging markets. It is found that Hong Kong and Singapore have fairly mobile capital markets while other countries exhibit financial openness only to a certain extent. The results also indicate that financial integration has been broadly enhanced among these markets following their liberalizations. However, except for Hong Kong, the degree of financial integration in all markets has not yet returned to the level before the Asian crisis. The volatility of differentials from covered interest parity is also tested using a GARCH model. For all economies with the exception of China show significant volatility during the financial crisis, this means drastic decline of the degree of financial integration during this time period.; The second aspect reviews the theory of optimum currency areas, exploring the impact of underlying real behavior on the choice of the monetary regime. This investigates the feasibility of creating a currency union in East Asia following the monetary cooperation in recent years. The approach mainly consists of a multivariate Structural VAR model by identifying various types of shocks in nine East Asian economies, and nine European Monetary Union countries are adopted as a benchmark. The analysis of structural disturbances suggests that Hong Kong, Indonesia, Korea, Malaysia, Singapore and Thailand may benefit from having a common monetary arrangement since these economies exhibit (a) significant and positive correlations of underlying disturbances, (b) small size of underlying disturbances and (c) similar impulse response function of real exchange rate.