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Purchasing Power Parity (PPP) of Australian Dollar: Do Test Procedures Matter?

Author

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  • AFM Kamrul Hassan

    (School of Economics and Finance, Curtin University, 78 Murray Street, Perth, WA, 6000, Australia)

  • Ruhul Salim

    (School of Economics and Finance, Curtin University, 78 Murray Street, Perth, WA, 6000, Australia)

Abstract

This article aims to reexamine whether Australia’s real exchange rate is mean reverting in the long run by using quarterly trade weighted indices of real exchange rate data for the period of June 1970 to September 2009. We use the state of the art of several more recent econometric tests for this purpose. The empirical result shows that the non-stationarity of Australia’s real exchange rate cannot be rejected. Thus, our results support the PPP hypothesis in Australia. Our results are contradictory to those of Cuestas and Regis (2008), but conform to those of Darné and Hoarau (2007 & 2008).

Suggested Citation

  • AFM Kamrul Hassan & Ruhul Salim, 2011. "Purchasing Power Parity (PPP) of Australian Dollar: Do Test Procedures Matter?," Economic Analysis and Policy, Elsevier, vol. 41(1), pages 71-81, March.
    • Handle: RePEc:eee:ecanpo:v:41:y:2011:i:1:p:71-81
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    Citations

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    Cited by:

    1. Yu Hsing, 2015. "Determinants of the AUD/USD Exchange Rate and Policy Implications," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 326-332, February.

    More about this item

    Keywords

    Purchasing power parity; Real exchange rate; Unit roots; Fractional integration;
    All these keywords.

    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
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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