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Re‐examining the Evidence for Long‐Run Purchasing Power Parity

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  • NILSS OLEKALNS
  • NIGEL WILKINS

Abstract

Corbae and Ouliaris (1991) examined Australia's long‐run real exchange rate and concluded that because the data follow a random walk, purchasing power parity does not hold as a longrun equilibrium relation. We re‐examine their data by calculating non‐parametric measures of persistence and estimating fractionally integrated ARMA models. We find that shocks to the real exchange rate have a finite life. This result is consistent with long‐run purchasing power parity.

Suggested Citation

  • Nilss Olekalns & Nigel Wilkins, 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.
    • Handle: RePEc:bla:ecorec:v:74:y:1998:i:224:p:54-61
    DOI: 10.1111/j.1475-4932.1998.tb01903.x
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    References listed on IDEAS

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    Cited by:

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    2. Ata Assaf, 2006. "Nonlinear Trend Stationarity in Real Exchange Rates: Evidence from Nonlinear ADF tests," Annals of Economics and Finance, Society for AEF, vol. 7(2), pages 283-294, November.
    3. Olivier Darne & Jean-Francois Hoarau, 2007. "The purchasing power parity in Australia: evidence from unit root test with structural break," Applied Economics Letters, Taylor & Francis Journals, vol. 15(3), pages 203-206.
    4. Goldman Elena & Tsurumi Hiroki, 2005. "Bayesian Analysis of a Doubly Truncated ARMA-GARCH Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(2), pages 1-38, June.
    5. Chiang, Shu-Mei & Lee, Yen-Hsien & Su, Hsin-Mei & Tzou, Yi-Pin, 2010. "Efficiency tests of foreign exchange markets for four Asian Countries," Research in International Business and Finance, Elsevier, vol. 24(3), pages 284-294, September.
    6. Mubariz Hasanov, 2012. "Re-examining Purchasing Power Parity for the Australian Real Exchange Rate," Hacettepe University Department of Economics Working Papers 20124, Hacettepe University, Department of Economics.
    7. Ata Assaf, 2004. "Rescaled variance analysis of real exchange rates," Applied Economics Letters, Taylor & Francis Journals, vol. 11(5), pages 303-306.
    8. Assaf, Ata, 2008. "Nonstationarity in real exchange rates using unit root tests with a level shift at unknown time," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 269-278.
    9. 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.

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