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Testing For Fractional Integration In Southern African Development Community Real Exchange Rates

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  • Thabo m. Mokoena
  • Rangan Gupta
  • Reneé Van eyden

Abstract

This paper utilises "a class test for fractional integration" associated with the seminal contribution of Hinich and Chong to appraise the possibility that Southern African Development Community (SADC) real exchange rates can be treated as long memory processes. The justification for considering fractional integration is that the general failure to reject the unit-root hypothesis in real exchange rates is caused by the restrictiveness of standard unit-root tests regarding admissible low-frequency dynamic behaviour. The paper presents evidence that, except for South Africa, none of the SADC real exchange rates are fractionally integrated. However, the results are found to be sensitive to the size of the sample. Copyright (c) 2009 The Authors. Journal compilation (c) 2009 Economic Society of South Africa.

Suggested Citation

  • Thabo m. Mokoena & Rangan Gupta & Reneé Van eyden, 2009. "Testing For Fractional Integration In Southern African Development Community Real Exchange Rates," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 531-537, December.
    • Handle: RePEc:bla:sajeco:v:77:y:2009:i:4:p:531-537
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    2. Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, vol. 69(2), pages 473-498, March.
    3. Diebold, Francis X. & Rudebusch, Glenn D., 1991. "On the power of Dickey-Fuller tests against fractional alternatives," Economics Letters, Elsevier, vol. 35(2), pages 155-160, February.
    4. Dufrénot, Gilles & Lardic, Sandrine & Mathieu, Laurent & Mignon, Valérie & Péguin-Feissolle, Anne, 2008. "Explaining the European exchange rates deviations: Long memory or non-linear adjustment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(3), pages 207-215, July.
    5. Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
    6. Mohamed Boutahar & Velayoudom Marimoutou & Leila Nouira, 2007. "Estimation Methods of the Long Memory Parameter: Monte Carlo Analysis and Application," Journal of Applied Statistics, Taylor & Francis Journals, vol. 34(3), pages 261-301.
    7. Richard T. Baillie & George Kapetanios, 2006. "Nonlinear Models with Strongly Dependent Processes and Applications to Forward Premia and Real Exchange Rates," Working Papers 570, Queen Mary University of London, School of Economics and Finance.
    8. George Kapetanios & Yongcheol Shin, 2003. "Testing for Nonstationary Long Memory against Nonlinear Ergodic Models," Working Papers 500, Queen Mary University of London, School of Economics and Finance.
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