BIVARIATE COINTEGRATION AMONG EUROPEAN MONETARY-SYSTEM EXCHANGE-RATES

In past research on the long-run behaviour of exchange rates the possi bility of cointegration among spot rates has been rejected. This rejec tion is surprising as some exchange rates are bound by official agreem ents to comove over time. The European Monetary System (EMS) is an exa mple of such an officially coordinating system. In this paper we exten d past research by focusing on only EMS rates and use potentially more powerful cointegration tests to show that EMS rates are cointegrated.