IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Estimation and Testing of ARFIMA Models in the Real Exchange Rate

Listed author(s):
  • Gil-Alana, L A
  • Toro, J

The Purchasing Power Parity (PPP) hypothesis is one of the most important theoretical relationships in international economics. However, its empirical support remains controversial. We propose an alternative way of modelling the real exchange rate in five industrialized countries in relation to the US dollar, by means of fractionally integrated ARIMA models (i.e. ARFIMA). This approach allows us to capture the low-frequency dynamics relevant for examination of the long-run parity. A crucial fact when estimating with parametric approaches is that the model must be correctly specified, otherwise the estimates are likely to be inconsistent. In fact, misspecification of the short-run components of the series can invalidate the estimation of its long-run behaviour. We propose a model selection criterion based on LR tests on nested parametric hypotheses along with other several likelihood-based criteria. As a validation method of the specified model, we suggest the use of Robinson's (1994) tests. Our empirical results indicate that the PPP might hold as a long-run proposition. Copyright @ 2002 by John Wiley & Sons, Ltd. All rights reserved.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 7 (2002)
Issue (Month): 4 (October)
Pages: 279-292

in new window

Handle: RePEc:ijf:ijfiec:v:7:y:2002:i:4:p:279-92
Contact details of provider: Web page:

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ijf:ijfiec:v:7:y:2002:i:4:p:279-92. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.