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Re-examining Purchasing Power Parity for the Australian Real Exchange Rate

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  • Mubariz Hasanov

    (Hacettepe University, Department of Economics)

Abstract

In this paper, we re-examine stationarity of the Australian real exchange rate (RER). For this purpose, we modify the test of Kapetanios et al. [Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics 112 (2003), 359-379] to allow for a nonlinear trend function in the data generating process. Using bootstrap techniques, we show that the null hypothesis of unit root can be rejected, providing evidence in favour of PPP proposition for the Australian RER.

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File URL: http://www.iktisat.hacettepe.edu.tr/WP/WP-2012-4.pdf
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Bibliographic Info

Paper provided by Hacettepe University, Department of Economics in its series Hacettepe University Department of Economics Working Papers with number 20124.

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Length: 17 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:hac:hacwop:20124

Contact details of provider:
Postal: Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, Ankara, Turkey
Phone: 0090 312 297 8652
Fax: (312) 299 2003
Email:
Web page: http://www.iktisat.hacettepe.edu.tr
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Keywords: Purchasing Power Parity; Nonlinearity; Unit Root;

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  1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  2. Erdinç Telatar & Mübariz Hasanov, 2009. "Purchasing Power Parity in Central and East European Countries," Eastern European Economics, M.E. Sharpe, Inc., vol. 47(5), pages 25-41, September.
  3. Robert Sollis, 2004. "Asymmetric adjustment and smooth transitions: a combination of some unit root tests," Journal of Time Series Analysis, Wiley Blackwell, vol. 25(3), pages 409-417, 05.
  4. Corbae, Dean & Ouliaris, Sam, 1991. "A Test of Long-Run Purchasing Power Parity Allowing for Structural Breaks," The Economic Record, The Economic Society of Australia, vol. 67(196), pages 26-33, March.
  5. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November.
  6. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
  7. Henry, Olan T. & Olekalns, Nilss, 2002. "Does the Australian dollar real exchange rate display mean reversion," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 651-666, October.
  8. Henry, Olan T & Olekalns, Nilss & Summers, Peter M, 2001. "Exchange Rate Instability: A Threshold Autoregressive Approach," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 160-66, June.
  9. Olekalns, Nilss & Wilkins, Nigel, 1998. "Re-examining the Evidence for Long-Run Purchasing Power Parity," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 54-61, March.
  10. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
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