Dynamic conditional correlation analysis of financial market interdependence: An application to Thailand and Indonesia

This paper examines the dynamic linkages among financial markets in Thailand and Indonesia. In particular, we focus on the cross-border relationship in individual markets and on the relationship between financial markets within each country. We find that while tight monetary policy pursued by Thailand authorities helped to defend the exchange rate at the outbreak of the financial crisis, it had little consequences for Indonesia at the end of 1998. The correlations between countries within each of the financial market reveal a certain degree of interdependence among countries, which is lower during crises.