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Further evidence on the PPP analysis of the Australian dollar: non-linearities, fractional integration and structural changes

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  • Juan Carlos Cuestas
  • Luís A. Gil-Alana

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.

Suggested Citation

  • Juan Carlos Cuestas & Luís A. Gil-Alana, 2009. "Further evidence on the PPP analysis of the Australian dollar: non-linearities, fractional integration and structural changes," Working Papers 2009/3, Nottingham Trent University, Nottingham Business School, Economics Division.
    • Handle: RePEc:nbs:wpaper:2009/3
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    Cited by:

    1. Luis A. Gil-Alana & Christophe André & Rangan Gupta & Tsangyao Chang & Omid Ranjbar, 2016. "The Feldstein--Horioka puzzle in South Africa: A fractional cointegration approach," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(7), pages 978-991, October.
    2. 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.
    3. Luis A. Gil-Alana & Jiang Liang, 2011. "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.
    4. 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.
    5. Dilem Yıldırım, 2016. "Empirical Investigation of Purchasing Power Parity for Turkey: Evidence from Recent Nonlinear Unit Root Tests," ERC Working Papers 1604, ERC - Economic Research Center, Middle East Technical University, revised Apr 2016.

    More about this item

    Keywords

    PPP; Real Exchange Rate; Unit Roots; Non-linearities; Fractional integration;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F15 - International Economics - - Trade - - - Economic Integration

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