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Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates

  • de Truchis, Gilles
  • Keddad, Benjamin

This paper examines generalized purchasing power parity theory (G-PPP) among the ASEAN-5 countries. Implementing both the rank analysis and the regression-based analysis of the cointegrating system's, we identify several weak fractional cointegration relationships. Accordingly, cointegrating errors of real exchange rates (RERs) are highly persistent but mean-reverting. Our findings contrast with all previous studies that restrict their investigations to the traditional I(1)/I(0) cointegration. Since RERs are tied through a long memory process, empirical models of G-PPP theory that ignore such a feature should be misspecified. Finally, our results support further monetary integration among different sub-groups of the ASEAN-5 countries as they share long-run comovements.

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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 26 (2013)
Issue (Month): C ()
Pages: 394-412

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Handle: RePEc:eee:intfin:v:26:y:2013:i:c:p:394-412
DOI: 10.1016/j.intfin.2013.07.005
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