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... If thesrank ofssmatrix is equal to nsthen tXsis a stationary process. In the intermediate case, nr 0 , there aresrsstationary linear combinations of the elements of tXsand rn sstochastic trends (=-=Haug, et al. 2000-=-). Given , the relation between sand the deterministic term, tt 10 , is crucial for the properties of tXsprocess. Five submodels are commonly derived (see Johansen 1994; Haug et al., 20...

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...ey arguably neglect cross-section dependence in general or cross-section cointegration in particular, our framework is able to deal with this issue by assuming a common factor structure. In this vein, our results suggest that common international rather than national stochastic trends are responsible for the non-stationarity of exchange rates and fundamentals. Further, we are able to show that cross-section cointegration exists in the sense of a long-run relationship between the common factors of exchange rates and fundamentals. The pattern of these results is in line with previous studies by Haug et al. (2000), Phengpis and Nguyen (2009) and Kühl (2010) which report cointegration between exchange rates across countries. Using data coded relative to the US economy, our findings imply that the dollar 20 Table 4: Short-run dynamics and adjustment coefficients of the exchange rates of 18 OECD countries Independent SUR system estimated by FGLS Variables Coefficient P-Value Coefficient P-Value Country-specific intercept Country-specific adjustment coefficient Australia 0.042 0.00 -0.048 0.01 Austria 0.097 0.00 -0.037 0.00 Belgium 0.126 0.00 -0.035 0.00 Canada 0.042 0.00 -0.056 0.00 Denmark 0.091 0.00 -0....

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...hange rates do exist. Short-run interlinkages are mostly due to information processing (Engle et al., 1990; Cai et al. 2008) and long-term linkages to the convergence of macroeconomic variables (e.g. =-=Haug et al., 2000-=-). Regarding the volatility, long-run volatility trends among major exchange rates can be observed (Alexander, 1995, Black and McMillan, 2004). Furthermore, volatility spillovers can be discovered for...

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...the U.S. (Kouparitsas 1999). Analogously, EMU is estimated to be successful for all original 12 EU countries only if fiscal reforms are pursued in order to attain larger comovement among all members (=-=Haug et al. 2000-=-). Output variability: less through aggregation effect; mean of stochastic variables fluctuates by less than its components. The loss of seigniorage is marginal once price stability has been reached a...

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...in. Specifically we adopt the Cointegration analysis techniques introduced in a bilateral framework by [8] and in a multivariate concept by [14], and has been further advanced by [16], [17], [18] and =-=[11]-=-. Specifically interest rates are known to have I(1) characteristics (however unit root and stationarity properties are examined before entering World Academy of Science, Engineering and Technology 30...