Long range dependence and the purchasing power parity (in Russian)
The 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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