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

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  • de Truchis, Gilles
  • Keddad, Benjamin

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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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 26 (2013)
Issue (Month): C ()
Pages: 394-412

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Handle: RePEc:eee:intfin:v:26:y:2013:i:c:p:394-412

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Web page: http://www.elsevier.com/locate/intfin

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Keywords: Monetary union; Fractional cointegration; Generalized purchasing power parity; ASEAN;

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Cited by:
  1. Gilles de Truchis & Benjamin Keddad, 2014. "Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities," Working Papers 2014-382, Department of Research, Ipag Business School.

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