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Use of Deviations of Purchasing Power Parity and Interest Rate Parity to Clarify the 1997 Asian Financial Crisis

Department of International Business, National Taiwan University, Taiwan, R.O.C.

and

Department of Industrial Engineering and Management, National Chin-Yi Institute of Technology, Taiwan, R.O.C.

We are grateful to Shi-Kuan Chen and seminar participants at the Cause and Remedies of Asian Crisis Conference (November 1999) in National Taiwan University for helpful comments. We also thank the editor and an anonymous referee for helpful comments and suggestions. We acknowledge the financial support of the National Science Council of the Republic of China (NSC 87-2416-H-002-007-E24). Corresponding author: Yin-Ching Jan.

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https://doi.org/10.1142/S0219091502000754Cited by:8 (Source: Crossref)

Abstract

This study is an attempt to examine whether the deviations of purchasing power parity and uncover interest rate parity Granger-cause the 1997 Asian financial crisis by using vector autoregression and Granger causality tests. The results show that the purchasing power parity and uncover interest rate parity do not hold for most Asian markets. We find weak evidence to support that the deviations of purchasing power parity and uncover interest rate parity have the power to explicate the origin of the financial crisis.

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