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

Author

Listed:
  • 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.

Suggested Citation

  • 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.
    • Handle: RePEc:hac:hacwop:20124
    as

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    File URL: http://www.iktisat.hacettepe.edu.tr/WP/WP-2012-4.pdf
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    References listed on IDEAS

    as
    1. Cuestas, Juan C. & Gil-Alana, Luís A., 2009. "Further evidence on the PPP analysis of the Australian dollar: Non-linearities, fractional integration and structural changes," Economic Modelling, Elsevier, vol. 26(6), pages 1184-1192, November.
    2. repec:bla:ecorec:v:67:y:1991:i:196:p:26-33 is not listed on IDEAS
    3. 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.
    4. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-1042, November.
    5. 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.
    6. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February.
    7. repec:bla:ecorec:v:77:y:2001:i:237:p:160-66 is not listed on IDEAS
    8. Juan Carlos Cuestas & Paulo José Regis, 2008. "Testing for PPP in Australia: Evidence from unit root test against nonlinear trend stationarity alternatives," Economics Bulletin, AccessEcon, vol. 3(27), pages 1-8.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Purchasing Power Parity; Nonlinearity; Unit Root;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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