The Role of New Taiwan Dollar In the Late Stage of Twenty Century: Cointegration Test for the International Finance

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Title:	The Role of New Taiwan Dollar In the Late Stage of Twenty Century: Cointegration Test for the International Finance
Authors:	Nieh, Chien-Chung;Cheng, Kuang-Cheng;Ou, Hong-Kou
Contributors:	淡江大學財務金融學系
Keywords:	NT dollar;Generalized-Purchasing Power Parity (G-PPP);Optimal currency area;Cointegration;Linear and Quadratic trend
Date:	2013
Issue Date:	2013-10-24 02:09:42 (UTC+8)
Publisher:	Beverly Hills: West World Productions, Inc.
Abstract:	Exploiting the idea of Enders and Hurn (1994), this study estimates the theory of G-PPP, investigating the long-run equilibrium relationship among bilateral real rates of New Taiwan dollar and other currencies under consideration. This study improves upon previous cointegration work by implementing multivariate maximum likelihood with consideration of Johansen (1988, 1990, & 1994) five VAR models. Moreover, applying the critical value of test statistics by Osterwald-Lenum (1992) enables us to consider the system up to eleven variables which overcomes the limitation of only up to five variables as Sarno (1997) faced. The results show that all three multi-country settings are found to constitute “optimal currency area” from this empirical work. Especially for the Asian four little dragons, they are highly integrated with three cointegrating vectors (almost full rank), but in the presence of no linear trend and quadratic trend. The finding of testing on the Pacific Rim nations is consistent with Enders and Hurn (1994) that the currencies of all the nations within the Pacific basin are mutually influenced. The result also advocates that there exists a long-run equilibrium relationship among NT$ together with the currencies of seven large industrialized countries.
Relation:	Storage Management Solution 2013(5), pp.197-210
Appears in Collections:	[Graduate Institute & Department of Banking and Finance] Journal Article

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