Mozambique Metical Exchange Rate Dynamics: Evidence of Fractional Co-Integration in the USA and South African Rates

Carlos Barros, Luis Gil-Alana and Joao Faria

South African Journal of Economics, 2015, vol. 83, issue 4, 569-575

Abstract: This paper studies the exchange rate dynamics of the Mozambique metical with respect to the US dollar and the South African rand. However, instead of using standard I(0)/I(1) techniques, we use long memory and fractionally integrated and co-integrated models. Our results indicate that the two exchange rates are highly persistent, with orders of integration equal to or above 1. They also seem to be co-integrated, with an order of integration close to albeit above 0 but with an AR coefficient very close to 1. Thus, although the two series seem to be fractionally co-integrated, shocks in the long-run relationship between the two variables are persistent and take a long time to disappear.

Date: 2015
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