Tao Liu, Central University of Finance and Economics:

This paper evaluates the degree of financial integration in Asia, from the perspective of currency markets. This topic is important for both academic research and policy analysis. There has been a long-standing debate on the cost and benefit of financial opening and capital account liberalization. Counter-cyclical financial flows help a country smooth consumption and improve the social welfare. Cyclical financial flows, however, would increase the volatility of output and consumption, making it more difficult for central banks to manage the economy. It is therefore important to first examine the status quo of financial market integration before governments make decisions on capital account liberalization. This issue has particular urgency and importance for ASEAN countries, given the catastrophic Asian financial crisis in 1997.

The authors rely on the variance decomposition in Diebold and Yilmaz (2014), as well as the pairwise Granger causality...

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