Long memory in real exchange rate changes.
Item
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Title
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Long memory in real exchange rate changes.
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Identifier
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AAI9820519
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identifier
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9820519
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Creator
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Christodoulou, Christodoulos Nicou.
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Contributor
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Adviser: Salih Neftci
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Date
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1998
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, General | Economics, Finance
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Abstract
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This study examines the time-series dynamics of real exchange rate changes in the fractionally integrated autoregressive moving average (ARFIMA) framework, which allows for long-memory in the data and is a generalization of the standard ARIMA model. Specifically, the differencing parameter of an ARFIMA model is not restricted to the integer domain and can assume real values. This generalization makes an ARFIMA model a parsimonious and flexible model to study long-memory, which induces persistence, and short-run dynamics simultaneously. Fractional integration is a more general way to describe dependence between observations some distance apart than the unit-root specification and provides an alternative perspective to examine the unit-root hypothesis. This empirical study provides supportive evidence of long-memory in real exchange rate changes, meaning that purchasing power parity may hold as a long-run relationship, based on a statistical procedure that is asymptotically robust to short-run memory and has a well defined distribution. In addition, when ARFIMA models are fitted to the data the estimates of the AR and MA parameters imply that there is long-memory in all real exchange rate data. To better understand the long-memory characteristics of real exchange rates, estimates of the impulse response parameters are obtained based on the fitted models. Impulse-responses provide more convincing evidence of long-range dependence in the real exchange rate data and also give information regarding the pattern and speed with which shocks to purchasing power parity are propagated.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
