TESTING FOR FRACTIONAL INTEGRATION IN SOUTHERN AFRICAN DEVELOPMENT COMMUNITY REAL EXCHANGE RATES |
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| Authors: | Thabo M Mokoena Rangan Gupta Reneé Van Eyden |
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| Institution: | 1. Economist, South African Reserve Bank, E‐mail: thabo.mokoena@resbank.co.za;2. Associate Professor, Department of Economics, University of Pretoria, Pretoria, 0002, South Africa. Tel: +2712420?3460, Fax: +27?12?362?5207. E‐mail: Rangan.Gupta@up.ac.za;3. Associate Professor, Department of Economics, University of Pretoria, Pretoria, 0002, South Africa. Tel: +2712420?3456, Fax: +27?12?362?5207. E‐mail: renee.vaneyden@up.ac.za |
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| Abstract: | This paper utilises “a class test for fractional integration” associated with the seminal contribution of Hinich and Chong to appraise the possibility that Southern African Development Community (SADC) real exchange rates can be treated as long memory processes. The justification for considering fractional integration is that the general failure to reject the unit‐root hypothesis in real exchange rates is caused by the restrictiveness of standard unit‐root tests regarding admissible low‐frequency dynamic behaviour. The paper presents evidence that, except for South Africa, none of the SADC real exchange rates are fractionally integrated. However, the results are found to be sensitive to the size of the sample. |
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| Keywords: | F31 Long memory processes real exchange rates mean‐reversion |
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