IDEAS home Printed from https://ideas.repec.org/p/hal/journl/halshs-00390141.html
   My bibliography  Save this paper

Explaining the European exchange rates deviations: long memory or nonlinear adjustment?

Author

Listed:
  • Gilles Dufrénot

    () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)

  • Sandrine Lardic

    (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Laurent Mathieu

    (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, C3ED - Centre d'économie et d'éthique pour l'environnement et le développement - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines)

  • Valérie Mignon

    () (CEPII - Centre d'études prospectives et d'informations internationales)

  • Anne Peguin-Feissolle

    () (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)

Abstract

The standard macroeconomic view links the equilibrium level of foreign exchange rates to the state of the macroeconomic fundamentals. Any deviation from the equilibrium level is viewed as temporary since there are forces ensuring quickly mean-reverting dynamics. The aim of this article is to investigate whether the empirical observation of the real exchange rate misalignments in five European countries over the period 1979–1999 was consistent with the hypothesis of temporary deviations from the fundamentals, or whether they must be associated with significant persistent dynamics. We depart from the traditional framework of linear cointegration by using fractional cointegration or non-linear cointegration. Therefore, we will try to discriminate between linear long memory dynamics and non-linear short memory dynamics.

Suggested Citation

  • Gilles Dufrénot & Sandrine Lardic & Laurent Mathieu & Valérie Mignon & Anne Peguin-Feissolle, 2008. "Explaining the European exchange rates deviations: long memory or nonlinear adjustment?," Post-Print halshs-00390141, HAL.
  • Handle: RePEc:hal:journl:halshs-00390141
    DOI: 10.1016/j.intfin.2006.09.004
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00390141
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 165-188.
    2. Gilles Dufrenot & Laurent Mathieu & Valerie Mignon & Anne Peguin-Feissolle, 2006. "Persistent misalignments of the European exchange rates: some evidence from non-linear cointegration," Applied Economics, Taylor & Francis Journals, vol. 38(2), pages 203-229.
    3. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    4. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November.
    5. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    6. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    7. Alvaro Escribano & Oscar Jorda, "undated". "Improved Testing And Specification Of Smooth Transition Regression Models," Department of Economics 97-26, California Davis - Department of Economics.
    8. Emmanuel Dubois & Sandrine Lardic & Valérie Mignon, 2004. "The Exact Maximum Likelihood-Based Test for Fractional Cointegration: Critical Values, Power and Size," Computational Economics, Springer;Society for Computational Economics, vol. 24(3), pages 239-255, July.
    9. Clark, Peter B. & MacDonald, Ronald, 2004. "Filtering the BEER: A permanent and transitory decomposition," Global Finance Journal, Elsevier, vol. 15(1), pages 29-56.
    10. KIRMAN, Alan & TEYSSIÈRE, Gilles, 2002. "Bubbles and long-range dependence in asset prices volatilities," CORE Discussion Papers 2002060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mohamed Boutahar & Gilles Dufrénot & Anne Péguin-Feissolle, 2008. "A Simple Fractionally Integrated Model with a Time-varying Long Memory Parameter d t," Computational Economics, Springer;Society for Computational Economics, vol. 31(3), pages 225-241, April.
    2. Kiliç, Rehim, 2009. "Further on nonlinearity, persistence, and integration properties of real exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(2), pages 207-221, April.
    3. Aloy, Marcel & Boutahar, Mohamed & Gente, Karine & Péguin-Feissolle, Anne, 2011. "Purchasing power parity and the long memory properties of real exchange rates: Does one size fit all?," Economic Modelling, Elsevier, vol. 28(3), pages 1279-1290, May.
    4. de Truchis, Gilles & Keddad, Benjamin, 2013. "Southeast Asian monetary integration: New evidences from fractional cointegration of real exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 394-412.
    5. Slim Chaouachi & Zied Ftiti & Frederic Teulon, 2014. "Explaining the Tunisian Real Exchange: Long Memory versus Structural Breaks," Working Papers 2014-147, Department of Research, Ipag Business School.
    6. Carrera, César, 2015. "Tracking exchange rate management in Latin America," Review of Financial Economics, Elsevier, vol. 25(C), pages 35-41.
    7. Carrera, César, 2014. "Tracking the Exchange Rate Management in Latin America," Working Papers 2014-020, Banco Central de Reserva del Perú.
    8. Marçal, Emerson Fernandes, 2013. "Exchange rate misalignments, interdependence, crises, and currency wars: an empirical assessment," Textos para discussão 348, FGV/EESP - Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
    9. Baillie, Richard T. & Kapetanios, George & Papailias, Fotis, 2014. "Bandwidth selection by cross-validation for forecasting long memory financial time series," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 129-143.
    10. Caporale, Guglielmo Maria & Gil-Alana, Luis A., 2013. "Long memory and fractional integration in high frequency data on the US dollar/British pound spot exchange rate," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 1-9.
    11. Béreau, Sophie & Villavicencio, Antonia López & Mignon, Valérie, 2010. "Nonlinear adjustment of the real exchange rate towards its equilibrium value: A panel smooth transition error correction modelling," Economic Modelling, Elsevier, vol. 27(1), pages 404-416, January.
    12. Mensi, Walid & Hammoudeh, Shawkat & Yoon, Seong-Min, 2014. "Structural breaks and long memory in modeling and forecasting volatility of foreign exchange markets of oil exporters: The importance of scheduled and unscheduled news announcements," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 101-119.
    13. Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers 2009-38, CEPII research center.
    14. López Villavicencio, Antonia, 2008. "Nonlinearities or outliers in real exchange rates?," Economic Modelling, Elsevier, vol. 25(4), pages 714-730, July.
    15. 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.
    16. repec:ipg:wpaper:2014-390 is not listed on IDEAS
    17. Rob Ackrill and Simeon Coleman, 2012. "Inflation dynamics in central and eastern European countries," Working Papers 2012/01, Nottingham Trent University, Nottingham Business School, Economics Division.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00390141. 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: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.