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South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates

Gilles de Truchis () and Benjamin Keddad ()

No wp1039, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: We study the long-run relationship of real exchanges rates (RERs) among the ASEAN-5 countries by testing the theory of Generalized Purchasing Power Parity (G-PPP) from the new perspective of fractional cointegration. The long-run co-movements of the RERs are examined by applying a recent estimator of fractional cointegration that consists of a frequency Whittle approximation of the cointegrating system???s likelihood function. The contribution of the fractional cointegration study is justified by identifying several weak fractional cointegration relationships that signal that deviations of RERs from their long-run equilibrium are highly persistent. These findings contrast with all previous studies that restrict their investigation to the traditional I(1)/I(0) cointegration. Our results support further monetary integration among different sub-groups of the ASEAN-5 countries as they share long-run comovements with each others. However, a full-fledged monetary union embracing all ASEAN-5 members is still limited from the perspective of the G-PPP theory.

Keywords: Monetary Union; Fractional Cointegration; Generalized purchasing power parity; ASEAN (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm and nep-sea
Date: 2012-10-01
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Related works:
Journal Article: Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates (2013) Downloads
Working Paper: Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates (2013)
Working Paper: South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates (2012) Downloads
Working Paper: South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates (2012) Downloads
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