Open AccessThe Integration of Financial Markets in GCC Countries
Author(s) -
Shabbir Ahmad
Publication year - 2011
Publication title -
pakistan development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.154
H-Index - 26
ISSN - 0030-9729
DOI - 10.30541/v50i3pp.209-218
Subject(s) - interest rate parity , unit root , univariate , exchange rate , economics , differential (mechanical device) , financial integration , interest rate , currency , financial market , purchasing power parity , monetary economics , international economics , econometrics , finance , multivariate statistics , statistics , mathematics , engineering , aerospace engineering
The real interest parity (RIP) condition states that theinterest rate differential between two economies is equivalent to thedifferential between the forward exchange rate and the spot exchangerate. This study examines the integration of financial markets in theGCC countries by verifying the validity of RIP in their economies. Usingunivariate and different panel unit root tests, we find evidencesupporting the RIP theory, which indicates that the financial markets inthese countries are well integrated and that the adoption of a commoncurrency would be relatively easy. JEL classification: F21; F36; C23Keywords: Real Interest Parity, GCC Countries, Panel Unit Root Tests,Monetary Union