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Exploring Long Memory and Nonlinearity in Irish Real Exchange Rates using Tests based on Semiparametric Estimation

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Author Info

  • Derek Bond

    (University of Ulster)

  • Michael J. Harrison

    (University College Dublin)

  • Edward J. O'Brien

    (European Central Bank)

Abstract

Deciding whether a time series that appears nonstationary is in fact fractionally integrated or subject to structural change is a difficult task. However, various tests have recently been introduced for distinguishing long memory from level shifts and nonlinearity. In this paper, three testing approaches based on the properties of semiparametric estimators of the fractional differencing parameter, d, are described and applied to the (log) Ireland-United Kingdom and Ireland-Germany real exchange rates. The two exchange rates behave quite differently over time and the new tests give different results for each; but overall the results provide fairly strong support for the possibility of nonlinearity rather than long memory.

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File URL: http://www.ucd.ie/t4cms/wp09.01.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200901.

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Length: 23 pages
Date of creation: 19 Jan 2009
Date of revision:
Handle: RePEc:ucn:wpaper:200901

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Related research

Keywords: Fractional integration; long memory; nonlinearity; real exchange rates; struc- tural change;

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References

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Cited by:
  1. Burcu Kıran, 2012. "Nonlinearity and Fractional Integration in the US Dollar/Euro Exchange Rate," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(3), pages 325-334, June.

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