Strong dependence in the nominal exchange rates of the Polish zloty

We examine the nominal exchange rates of six currencies (Canadian, Australian and U.S. dollars, euro, Japanese yen and U.K. pound) against the Polish zloty by means of statistical techniques based on unit roots and other long memory processes. We use both parametric and semiparametric methods for estimating and testing integer and fractional orders of integration at the long run or zero frequency. The results show that unit roots are likely to occur in relation with the U.S. and the Canadian dollars, the Japanese yen and the U.K. pound. However, for the Australian dollar and the euro, this hypothesis is rejected in favour of smaller degrees of integration, implying mean reversion in their behaviour. Thus, for the former currencies, in the event of an exogenous shock affecting the exchange rates, strong policy actions must be required to bring the variables back to their original levels. On the other hand, for the Australian dollar and the euro, there exists less need of action since the series will return to their levels sometime in the future. Copyright © 2006 John Wiley & Sons, Ltd.