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Further evidence on the PPP analysis of the Australian dollar. Non-linearities, fractional integration and structural change

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  • Luis A. Gil-Alana

    ()
    (Facultad de Ciencias Económicas y Empresariales, Universidad de Navarra)

  • Juan C. Cuesta

    (Nottingham Trent University)

Abstract

The aim of this paper is to analyse the empirical fulfilment of the Purchasing Power Parity (PPP) theory for the Australian dollar. In order to do so we have applied recently developed unit root tests that account for asymmetric adjustment towards the equilibrium (Kapetanios et al., 2003) and fractional integration in the context of structural changes (Robinson, 1994, and Gil-Alana, 2008). Although our results point to the rejection of the PPP hypothesis, we find that the degree of persistence of shocks to the Australian dollar decreases after the 1985 currency crisis.

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Bibliographic Info

Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 07/09.

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Length: 32 pages
Date of creation: 01 Nov 2009
Date of revision:
Handle: RePEc:una:unccee:wp0709

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Web page: http://www.unav.es/facultad/econom

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Cited by:
  1. Cuestas, Juan Carlos & Regis, Paulo José, 2013. "Purchasing power parity in OECD countries: Nonlinear unit root tests revisited," Economic Modelling, Elsevier, vol. 32(C), pages 343-346.
  2. Daniel Agyapong & Anokye M. Adam, 2012. "Exchange Rate Behaviour: Implication for West African Monetary Zone," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 215-228, October.
  3. Luis A. Gil-Alana & Jiang Liang, 2010. "The PPP hypothesis in the US/China relationship. Fractional integration, time variation and data frequency," Faculty Working Papers 13/11, School of Economics and Business Administration, University of Navarra.

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