Citation

Tee, Chee Lip and Ooi, Say Keat and Law, Chee Hong (2019) Threshold effect of financial integration on linkages between monetary independnce and foreign exchange reserve. ASIAN ACADEMY OF MANAGEMENT JOURNAL OF ACCOUNTING AND FINANCE, 15 (1). pp. 61-81. ISSN 1823-4992, 2180-4192

Text 283.pdf - Published Version Restricted to Repository staff only Download (409kB)

Abstract

This paper investigates the relationship between monetary independence and its potential determinants — foreign exchange reserves, exchange rate stability, financial integration and inflation. This paper contributes to the literature by testing the threshold effect of the degree of financial integration on the relation between monetary independence and foreign exchange reserves. In particular, a linear model and a threshold model are compared using average cross-sectional data from 55 countries. The linear model shows that foreign exchange reserves increase monetary independence. Nonetheless, the threshold estimation indicates that foreign exchange reserves can maintain monetary independence when the degree of financial integration of a country is above a certain threshold value. Such a finding suggests that the relationship between monetary independence and foreign exchange reserves is subject to the degree of financial integration. Moreover, the evidence supports a weakening effect from financial integration to the phenomenon of ‘fear of floating’.

Item Type:	Article
Uncontrolled Keywords:	monetary independence, foreign exchange reserves, financial integration, threshold effect, cross-sectional data
Subjects:	H Social Sciences > HG Finance > HG3810-4000 Foreign exchange. International finance. International monetary system
Divisions:	Faculty of Management (FOM)
Depositing User:	Ms Suzilawati Abu Samah
Date Deposited:	23 Feb 2022 04:13
Last Modified:	23 Feb 2022 04:13
URII:	http://shdl.mmu.edu.my/id/eprint/9170

Downloads

Edit (login required)