Long range dependence and the purchasing power parity (in Russian)
AbstractThe aim of this paper is to explore the purchasing power parity between the United States and Japan. This is done indirectly by estimating fractional integration orders of the aggregate price series in the two countries and nominal and real exchange rates. Our results suggest that both nominal and real exchange rates are well described by conventional I(1)-processes whereas both US and Japan's price levels are around I(1.46). The latter result comes into contradiction with the traditional view that aggregate price series are usually second-order integrated processes. The point estimate of the fractional integration order for the log-difference in price levels in the US and Japan yields the figure 1.33 which is (statistically) smaller than the order 1.46 obtained for the aggregate price series. The latter result may be considered as a (very weak) evidence of the purchasing power parity property: the fractional order of the ratio of the price levels is smaller than that for each price level.
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Bibliographic InfoArticle provided by Quantile in its journal Quantile.
Volume (Year): (2007)
Issue (Month): 2 (March)
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Web page: http://quantile.ru/
purchasing power parity; exchange rates; fractional integration;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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