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A cointegration analysis of the official and parallel foreign exchange markets for dollars in Greece
Author(s) -
Kouretas Georgios P.,
Zarangas Leonidas P.
Publication year - 1998
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/(sici)1099-1158(199807)3:3<261::aid-ijfe71>3.0.co;2-z
Subject(s) - cointegration , economics , econometrics , johansen test , unit root , error correction model , exchange rate , float (project management) , mathematics , macroeconomics , management
This paper examines the monetary model of exchange rate determination from a long‐run perspective in the presence of a ‘parallel’ or ‘black’ market for US dollars in Greece using monthly data for the recent float, in four ways. First, unit root tests that maintain both stationarity and nonstationarity about either mean or trend are employed to determine the order of integration of our data. Second, using the Johansen's multivariate cointegration technique we found one significant cointegration vector. Johansen's FIML and Stock and Watson's (1993) DOLS approach were employed to estimate the cointegration coefficients. Third, formal stability tests as described by Hansen and Johansen (1993) were used, and it is shown that the dimension of the cointegration space may exhibit sample dependency, but the estimated coefficients are not unstable in recursive estimations. Finally, a new efficient and consistent test that maintains the null of cointegration developed by Shin (1994) was utilized, and once again the evidence in favour of cointegration was accepted. © 1998 John Wiley & Sons, Ltd.