Fractional Integration of Nominal Exchange Rates: Evidence from CEECs in the Light of Emu Enlargement

16 Pages Posted: 24 Jan 2011

See all articles by Carlos Pestana Barros

Carlos Pestana Barros

Technical University of Lisbon - Instituto Superior de Economia e Gestao

Luis A. Gil-Alana

University of Navarra - Department of Economics

Roman Matousek

London Metropolitan University - Department of Economics, Finance and International Business (EFIB)

Abstract

This paper uses fractional integration models to describe the long-run dependence of nominal exchange rates in Central and Eastern European countries (CEECs). The analysis is validated using nonparametric, semiparametric and parametric techniques. From comparing the results across the three approaches, it was clear that mean reversion takes places only for the euro exchange rates in Bulgaria, Estonia, and Slovenia. Other exchange rates based on the euro also display mean reversion with the parametric methods. For the US dollar rates, the unit-root null hypothesis cannot be rejected in any single country, indicating that shocks affecting the exchange rates against the US dollar are of a permanent nature, while those directed against the euro are less persistent, and tend sometimes to disappear in the long run. Policy implications are derived.

Suggested Citation

Barros, Carlos Pestana and Gil-Alana, Luis A. and Matousek, Roman, Fractional Integration of Nominal Exchange Rates: Evidence from CEECs in the Light of Emu Enlargement. Review of International Economics, Vol. 19, No. 1, pp. 77-92, 2011, Available at SSRN: https://ssrn.com/abstract=1745797 or http://dx.doi.org/10.1111/j.1467-9396.2010.00933.x

Carlos Pestana Barros

Technical University of Lisbon - Instituto Superior de Economia e Gestao ( email )

R. Miguel Lupi, 20
Lisbon, 1200
Portugal

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Roman Matousek

London Metropolitan University - Department of Economics, Finance and International Business (EFIB) ( email )

Economics Subject Group, LMBS
London EC2M 6SQ, EC2M 6SQ
United Kingdom

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