Fractional Differencing Modeling and Forecasting of Eurocurrency Deposit Rates

We investigate the low frequency properties of three- and six- month rates for Eurocurrency deposits denominated in eight major currencies with specific emphasis on fractional dynamics. Using the fractional integration testing procedure suggested by Geweke and Porter-Hudak (1983), we find that several of the Eurocurrency deposit rates are fractionally integrated processes with long memory. These findings have important implications for econometric modeling, forecasting, and cointegration testing of Eurocurrency rates.