  A time-varying cointegration model for foreign exchange rates is presented.
Unlike previous studies, we allow the loading matrix in the vector error
correction (VEC) model to be varying over time. Because the loading matrix in
the VEC model is associated with the speed at which deviations from the
long-run relationship disappear, we propose a new degree of market comovement\
based on the time-varying loading matrix to measure the strength or robustness
of the long-run relationship over time. Since exchange rates are determined by
macrovariables, cointegration among exchange rates implies those macroeconomic
variables share common stochastic trends. Therefore, the proposed degree
measures the degree of market comovement. Our main finding is that the market
comovement has become stronger over the past quarter century, but the rate at
which market comovement strengthens is decreasing with two major turning
points: one in 1995 and the other one in 2008.
