Estimation of a fractionally cointegrated demand system: evidence from the Japanese expenditure data

In this article, we investigate the exact integration of series and analyse the cointegration relationship in the Japanese demand system. We find that the series considered in this analysis follow a fractionally <italic>I</italic>(<italic>d</italic>) process, not an exact <italic>I</italic>(1) one. Further, the Japanese demand system comprises the fractional cointegration relationships. Therefore, the use of a standard cointegration analysis might have a possibility of misleading the demand system with a fractionally cointegrated <italic>I</italic>(<italic>d</italic>) process.