THE LONG-RUN PURCHASING POWER PARITY FOR THE YEN - HISTORICAL OVERVIEW

This paper examines the long-run behavior of the yen/dollar real excha nge rate. Several series are spliced to compose long Japanese consumer and wholesale price indices, long U.S. consumer and wholesale price i ndices, and the yen/dollar exchange rate. from 1879 to 1995. The CPI-b ased real exchange rate tended to depreciate in the pre-WWII periods. but strongly appreciated in the post-WWII periods. The WPI-based real exchange rate did not show any trend in the pre-WWII periods, but appr eciated moderately in the post-WWII periods. The unit root tests wire not rejected for the CPI-based real exchange rate series, but some of them were rejected for the WPI-based real exchange rate series, sugges ting mean reversion property only for the WPI-based series. The Balass a-Samuelson hypothesis to explain a drift and/or a trend in the real e xchange rate series had only a weak support. (C) 1997 Academic Press.