Re‐examining the Evidence for Long‐Run Purchasing Power Parity

Nilss Olekalns () and Nigel Wilkins

The Economic Record, 1998, vol. 74, issue 224, 54-61

Abstract: 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.

Date: 1998
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