Cointegration, Fractional Cointegration, and Exchange Rate Dynamics

Richard Baillie and Tim Bollerslev

Journal of Finance, 1994, vol. 49, issue 2, 737-45

Abstract: Multivariate tests due to Soren Johansen, as implemented by Richard T. Baillie and Tim Bollerslev (1989) and Francis X. Diebold, Javier Gardeazabal, and Kamil Yilmaz (1994), reveal mixed evidence on whether a group of exchange rates are cointegrated. Further analysis of the deviations from the cointegrating relationship suggests that it possesses long memory and may possibly be well described as a fractionally integrated process. Hence, the influence of shocks to the equilibrium exchange rates may only vanish at very long horizons. Copyright 1994 by American Finance Association.

Date: 1994
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Working Paper: Cointegration, Fractional Cointegration, and Exchange RAte Dynamics (1993)
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