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The purchasing power parity in Australia: evidence from unit root test with structural break

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  • Olivier Darné

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Jean-François Hoarau

    (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion)

Abstract

The unit root test with structural break developed by Perron and Rodriguez are used to study the purchasing power parity (PPP) in the spirit of Balassa–Samuelson in Australia for the period January 1977 to April 2004. The results indicate that there is a break in February 1985 which coincides with the exchange rate crisis in 1985, occurring after the establishment of the dirty flexible exchange rate system. We also show that there is no tendency to the PPP in Australia to hold in the long-run during this period.

Suggested Citation

  • Olivier Darné & Jean-François Hoarau, 2008. "The purchasing power parity in Australia: evidence from unit root test with structural break," Post-Print hal-01243482, HAL.
    • Handle: RePEc:hal:journl:hal-01243482
    DOI: 10.1080/13504850600721957
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    1. repec:ebl:ecbull:v:3:y:2008:i:27:p:1-8 is not listed on IDEAS
    2. 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.
    3. Mubariz Hasanov, 2014. "Testing for a unit root in the presence of a nonlinear trend: The case of Australian Reel Exchange Rate," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 1(1), pages 10-17.
    4. Ahmad Zubaidi Baharumshah & Siew-Voon Soon, 2012. "Mean reversion in bilateral real exchange rates: evidence from the Malaysian ringgit," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2921-2933, August.
    5. Yutaka Kurihara, 2009. "Is Purchasing Power Parity Hypothesis Reasonable from the View of Trade Blocks and Currency Zones?," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 3-14.
    6. 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.
    7. Xie, Zixiong & Chen, Shyh-Wei & Hsieh, Chun-Kuei, 2021. "Facing up to the polysemy of purchasing power parity: New international evidence," Economic Modelling, Elsevier, vol. 98(C), pages 247-265.

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