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South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates

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  • Gilles de Truchis

    ()

  • Benjamin Keddad

    ()

Abstract

We study the long-run relationship of real exchanges rates (RERs) among the ASEAN-5 countries by testing the theory of Generalized Purchasing Power Parity (G-PPP) from the new perspective of fractional cointegration. The long-run co-movements of the RERs are examined by applying a recent estimator of fractional cointegration that consists of a frequency Whittle approximation of the cointegrating system’s likelihood function. The contribution of the fractional cointegration study is justified by identifying several weak fractional cointegration relationships that signal that deviations of RERs from their long-run equilibrium are highly persistent. These findings contrast with all previous studies that restrict their investigation to the traditional I(1)/I(0) cointegration. Our results support further monetary integration among different sub-groups of the ASEAN-5 countries as they share long-run comovements with each others. However, a full-fledged monetary union embracing all ASEAN-5 members is still limited from the perspective of the G-PPP theory.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1039.

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Length: pages
Date of creation: 01 Oct 2012
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Handle: RePEc:wdi:papers:2012-1039

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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, 2013. "Analyzing Financial Integration in East Asia through Fractional Cointegration in Volatilities," AMSE Working Papers 1346, Aix-Marseille School of Economics, Marseille, France, revised Sep 2013.

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