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Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates

Abstract : This paper examines generalized purchasing power parity theory (G-PPP) among the ASEAN-5 countries. Implementing both the rank analysis and the regression-based analysis of the cointegrating system's, we identify several weak fractional cointegration relationships. Accordingly, cointegrating errors of real exchange rates (RERs) are highly persistent but mean-reverting. Our findings contrast with all previous studies that restrict their investigations to the traditional I(1)/I(0) cointegration. Since RERs are tied through a long memory process, empirical models of G-PPP theory that ignore such a feature should be misspecified. Finally, our results support further monetary integration among different sub-groups of the ASEAN-5 countries as they share long-run comovements.
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https://hal-amu.archives-ouvertes.fr/hal-01498261
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Submitted on : Wednesday, March 29, 2017 - 5:32:36 PM
Last modification on : Tuesday, March 15, 2022 - 10:16:13 AM

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Gilles De Truchis, Benjamin Keddad. Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates. Journal of International Financial Markets, Institutions and Money, 2013, 26 (C), pp.394-412. ⟨10.1016/j.intfin.2013.07.005⟩. ⟨hal-01498261⟩

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