 A fractional cointegration var analysis of exchange rate dynamicsLuis Gil-Alana and Hector Carcel The North American Journal of Economics and Finance, 2020, vol. 51, issue C Abstract: In their seminal work, Baillie and Bollerslev (1994) carried out an analysis of deviations from the cointegrating relationship of seven important exchange rates. They suggested that the exchange rate series possess long memory and therefore such processes could be well described as fractionally integrated processes. Hence, the influence of shocks to the equilibrium exchange rates may only vanish at very long horizons. In this work we analyze the cointegrating structure of five exchange rates to the US dollar, namely the British pound, the Euro, the Swedish Krona, the Canadian Dollar and the Swiss Franc. The series possess long memory and we show that they can be modeled through fractional integration. In fact, standard cointegration is rejected with the more traditional Johansen CVAR methodology. By using the recently introduced Fractionally Cointegrated VAR by Johansen and Nielsen (2012) we provide a cointegrating relationship taking into account fractional integration. Keywords: Exchange rates; Long memory; Cointegration; FCVAR model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818302547 DOI: 10.1016/j.najef.2018.09.006 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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