Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 227: Do Long-Memory Models Have Long Memory?

Michael K. Andersson
Additional contact information
Michael K. Andersson: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper examines the predictability memory of fractionally integrated ARMA processes. Very long memory is found for positively fractionally integrated processes with large positive AR parameters. However, negative AR parameters absorb, to a great extent, the memory generated by a positive fractional difference. An MA parameter may also reduce the predictability memory substantially, even if the parameter alone provides hardly any memory.

Keywords: ARMA; Fractional integration; Prediction horizon

JEL-codes: C22; C52; C53

4 pages, First version: February 27, 1998. Revised: March 16, 2000.

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