Nonlinear convergence in Asian interest and inflation rates: evidence from Asian countries

We examine the dynamics of convergence in seven Asian countries for nominal and real interest rates, and inflation rates. We test for convergence relative to the U.S. and Japan, using quarterly data 1973:2–2011:3, employing nonlinear unit root tests. The linearity test shows evidence of nonlinearity in all the cases. In most cases, we find evidence of logistic smooth transition autoregression-type non-linearity. Moreover, nonlinear unit root tests reveal evidence of nonlinear stationary nominal and real interest rates and inflation differentials in all cases. We interpret these results as convergence in inflation rates and real and nominal interest rates.     

Nonlinear adjustment of Asian real exchange rates

We utilize nonlinear models to examine the stationarity of Asian real exchange rates over the period from 1980:10 to 2007:09, using the US, Japan, and China as base countries. We find evidence of nonlinearity in most cases. Contrary to widely-held belief that the behavior of the real exchange rate should exhibit symmetrical adjustment for deviations above and below the equilibrium level, we find strong evidence of asymmetrical adjustment for most cases. Applying unit root tests that account for two types of nonlinearities (smooth transition and nonlinear deterministic trends) reveals evidence of stationarity in all but the Philippines vis-à-vis Japan. Further testing shows that the results are robust to different exchange rate regimes and, in the case of Malaysia, robust to the imposition of capital controls after the 1997 Asian crisis.     

On the relationship between Asian exchange rates and stock prices: a nonlinear analysis

Economic Change and Restructuring - This paper examines the relationship between stock prices and exchange rates for the ASEAN5 plus the Big3. While previous studies have assumed a symmetric...     

Oil price shocks and stock market returns of the GCC countries: empirical evidence from quantile regression analysis

This paper examines the effects of oil price shocks on the stock market returns of the Gulf Cooperation Council countries. The empirical method used is quantile regression analysis. In addition, we allow for structural breaks and asymmetry by differentiating between positive and negative oil price changes. Unlike OLS analysis, quantile regression allows the coefficient estimates to vary throughout the distribution of the dependent variable, which provides a complete picture of the relationship between the explanatory variables and the dependent variable. Our results suggest that the coefficient estimates have not been constant throughout the distribution of stock returns; that oil price shocks have asymmetrical effects on stock returns; and that the effects of oil price shocks on stock market returns are affected by stock market conditions. Overall, the results suggest that rising oil prices increase stock returns only when stock markets are bullish (high quantiles) and normal (medium quantiles), and that falling oil prices lower stock returns only when stock markets are bearish (low quantiles) and normal (medium quantiles). This suggests that oil and stock markets are more likely to boom together or crash together.