Cointegration, Fractional Cointegration, and Exchange Rate Dynamics

Richard T. Baillie · Tim Bollerslev

363 citations0/0 files storedThe Journal of Finance

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Monetary Policy and Economic Impact Financial Risk and Volatility Modeling Complex Systems and Time Series Analysis

Abstract

ABSTRACT Multivariate tests due to Johansen (1988, 1991) as implemented by Baillie and Bollerslev (1989a) and Diebold, Gardeazabal, and 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.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1988Statistical analysis of cointegration vectors 1991Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models 1993A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems 1980AN INTRODUCTION TO LONG‐MEMORY TIME SERIES MODELS AND FRACTIONAL DIFFERENCING 1981Fractional Differencing 1981Some properties of time series data and their use in econometric model specification 1990Asymptotic Properties of Residual Based Tests for Cointegration

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