Exploring Long Memory and Nonlinearity in Irish Real Exchange Rates using Tests based on Semiparametric Estimation
AbstractDeciding 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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Bibliographic InfoPaper provided by School Of Economics, University College Dublin in its series Working Papers with number 200901.
Length: 23 pages
Date of creation: 19 Jan 2009
Date of revision:
Fractional integration; long memory; nonlinearity; real exchange rates; struc- tural change;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-24 (All new papers)
- NEP-ETS-2009-01-24 (Econometric Time Series)
- NEP-IFN-2009-01-24 (International Finance)
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