Premium
Re‐examining the Evidence for Long‐Run Purchasing Power Parity *
Author(s) -
OLEKALNS NILSS,
WILKINS NIGEL
Publication year - 1998
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1998.tb01903.x
Subject(s) - purchasing power parity , relative purchasing power parity , econometrics , economics , parity (physics) , parametric statistics , exchange rate , purchasing , mathematics , statistics , monetary economics , operations management , physics , particle physics
Corbae and Ouliaris (1991) examined Australia's long‐run real exchange rate and concluded that because the data follow a random walk, purchasing power parity does not hold as a longrun equilibrium relation. We re‐examine their data by calculating non‐parametric measures of persistence and estimating fractionally integrated ARMA models. We find that shocks to the real exchange rate have a finite life. This result is consistent with long‐run purchasing power parity.