CHEER and markets’ integration: evidence from selected East Asian economies

Abstract

Purpose This paper aims to investigate markets’ integration using the capital enhanced equilibrium exchange rate (CHEER) model for seven, highly competitive, East Asian countries. Design/methodology/approach The sample consists of monthly observations, whereas unit root and cointegration techniques with structural shifts have been used. Findings The evidence shows that the weak form of the CHEER approach holds for Malaysia and Thailand. For China, Japan, Korea, Singapore and Taipei, only the uncovered interest parity condition is validated, implying capital markets integration. In contrast, for these five countries, the results indicate absence of goods’ markets integration. This outcome can be attributed to the impact of quite high non-tariff barriers and the Balassa–Samuelson effect. Originality/value To the best of the author’s knowledge, this is the first study that investigate markets’ integration in several East Asian economies, using the CHEER approach and more accurate price indices.