Abstract
In this paper, we use the plug-in and Whittle methods that are based on spectral regression analysis to test for the long memory property in 12 Asian/dollar daily exchange rates. The results according to the plug-in method show that with the exception of Chinese renminbi all series may have long memory properties. The results based on the Whittle method, on the other hand, show that only Japanese yen and Malaysian ringgit may have long memory properties.
It is well known that inference about the differencing parameter, d, in presence of structural break in a series entails considerable difficulties. Therefore, given the financial crisis of 1997–1998 in Asia, further tests for unravelling of the memory property and presence of structural break in the exchange rate series are required.
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In spectral analysis, one comes across noises of various color: White, pink, brown, and black. Noise refers to the power spectra, or what is the same thing, squared magnitude of the Fourier transform of a time series. Noises follow a power law in the form of f −β, where f is frequency and β is a constant. White noise has a spectral exponent of β = 0.
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Soofi, A.S., Wang, S. & Zhang, Y. Testing for Long Memory in the Asian Foreign Exchange Rates. Jrl Syst Sci & Complex 19, 182–190 (2006). https://doi.org/10.1007/s11424-006-0182-5
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DOI: https://doi.org/10.1007/s11424-006-0182-5