부산대학교 도서관

We conduct an empirical analysis on the applicability of standard international parity conditions, that is, relative purchasing power parity, uncovered interest rate parity, and real interest rate parity in the case of Korea and China. For the analyses, we divide the sample period from January 1994 to June 2008 into the whole period and the post-Asian financial crisis period. We use data for monthly consumer price index, monthly dollar exchange rate and call rate. Econometric techniques of unit root test, least squares regression and variance decomposition were applied. We find the followings from the analysis. First, international parity conditions testing and measuring market integration between Korea and China do not hold in the short run, but long-run relationships tend to hold. Second, the degree of integration of goods and service markets(real economy) is higher than that of financial markets(financial economy) between Korea and China. It is duly noted that various real and financial restrictions on economic transactions still exist between Korea and China. The Chinese government has a formal capital controls in place and is known for its interference with domestic financial market, and the Chinese financial system yet to become more efficient. It is also found that interest rate variability plays a major role in determining the variability of deviations from these parity conditions. This study is meaningful as far as it provides a simple but current measure on how closely the two economies are interconnected.