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Exploring long memory and nonlinearity in Irish real exchange Rates using tests based on semiparametric estimation

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Listed:
  • D. (Derek) Bond
  • Michael J. Harrison
  • Edward J. (Edward Joseph) O'Brien

Abstract

Deciding whether a time series that appears nonstationary is in fact fractionally integrated or subject to structural change is a diffcult 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.

Suggested Citation

  • D. (Derek) Bond & Michael J. Harrison & Edward J. (Edward Joseph) O'Brien, 2009. "Exploring long memory and nonlinearity in Irish real exchange Rates using tests based on semiparametric estimation," Working Papers 200901, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200901
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    File URL: http://hdl.handle.net/10197/1322
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    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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    More about this item

    Keywords

    Fractional integration; Long memory; Nonlinearity; Real exchange rates; Structural change; Time-series analysis; Foreign exchange rates--Econometric models; Nonlinear theories;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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