Examining Interest Rate Linkages among ASEAN-5, China and India

Interest rates play an important role, not only in attracting capital inflow, but also in macroeconomic stabilization and determining asset prices. Given the interdependent nature of member countries of the Association of Southeast Asian Nations (ASEAN), it is crucial to examine whether there is any evidence of co-movement of short-term domestic interest rates within these economies. In addition, because of their significant economic influence in the region, we explore the Granger causality with China and India in determining their impact on interest rate movement in ASEAN-5 economies. We find evidence of cointegration; there is co-movement among the ASEAN interest rates. Further, based on the causality test, we find that China exerts more influence on the direction of the interest rates in the region.