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Are The Real Exchange Rate Indices of Australia Non-Stationary in the Presence of Structural Break?

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Abstract

This paper examines the time series properties of real exchange rate indices of Australia in the presence of structural break. Traditional unit root procedures have low power when structural break is ignored. By including structural change in the data, Perron’s (1997) Additive Outlier model was found optimal. Three indices (Trade-weighted index (TWI), Export-weighted index (EWI) and Import-weighted index (IWI) are found to be stationary while G7 GDP-weighted index (G7WI) was found non-stationary. The estimated break dates correspond to the period of huge real GDP downturn in Australia (early 1990s), and the global recession in the early 1980s affecting the G7 countries.

Suggested Citation

  • Chowdhury, Khorshed, 2007. "Are The Real Exchange Rate Indices of Australia Non-Stationary in the Presence of Structural Break?," Economics Working Papers wp07-05, School of Economics, University of Wollongong, NSW, Australia.
    • Handle: RePEc:uow:depec1:wp07-05
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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/web/uow021424.pdf
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    Cited by:

    1. Chowdhury, Khorshed, 2012. "Modelling the dynamics, structural breaks and the determinants of the real exchange rate of Australia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(2), pages 343-358.
    2. Khorshed Chowdhury, 2011. "Dynamics, Structural Breaks and the Determinants of the Real Exchange Rate of Australia," Economics Working Papers wp11-11, School of Economics, University of Wollongong, NSW, Australia.

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    More about this item

    Keywords

    Real exchange rate; purchasing power parity; unit root; structural break.;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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