Long-Range Dependence in Exchange Rates: the case of the European Monetary System

Sergio Souza, Benjamin Tabak and Daniel Cajueiro

No 131, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: In this work we measure the evolution of the long-range dependence phenomenon of returns and volatilities of nominal British exchange rates (British pound against US dollar) futures contracts negotiated on the Chicago Mercantile Exchange from 1986 to 2004. The measurement employs the R/S classic analysis, Detrended Fluctuation Analysis and Generalized Hurst exponents, upon a 1008-observation window, which moves along the data. We obtain as a result, the effects of the 1992 European financial crises on the measurements of the long-range dependency phenomenon. After the crisis the returns of this futures contract showed no signs of the long-range memory, which existed before the crisis. The volatility presented moderate long-range memory the whole time. We also test for long-memory in European currencies inside the European Monetary System and find evidence of moderate long memory, which suggests that being inside the EMS increases predictability.

Date: 2007-01
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: LONG-RANGE DEPENDENCE IN EXCHANGE RATES: THE CASE OF THE EUROPEAN MONETARY SYSTEM (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:131

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