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

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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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  • Gilles de Truchis & Benjamin Keddad, 2012. "South East Asian Monetary Integration: New Evidences from Fractional Cointegration of Real Exchange Rates," AMSE Working Papers 1229, Aix-Marseille School of Economics, Marseille, France, revised 05 Nov 2012.
  • Handle: RePEc:aim:wpaimx:1229
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    Cited by:

    1. Giorgio Canarella & Stephen M. Miller, 2016. "Inflation Targeting: New Evidence from Fractional Integration and Cointegration," Working papers 2016-08, University of Connecticut, Department of Economics.
    2. 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.
    3. Kentaro Kawasaki & Zhi-Qian Wang, 2015. "Is Economic Development Promoting Monetary Integration in East Asia?," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 3(4), pages 1-31, October.
    4. repec:eee:jebusi:v:92:y:2017:i:c:p:45-62 is not listed on IDEAS
    5. Guglielmo Maria Caporale & Hector Carcel & Luis A. Gil-Alana, 2018. "Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence," CESifo Working Paper Series 7073, CESifo Group Munich.

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    Keywords

    Monetary Union; Fractional Cointegration; Generalized purchasing power parity; ASEAN.;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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