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

Khorshed Chowdhury ()
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Khorshed Chowdhury: University of Wollongong

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

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.

Keywords: Real exchange rate; purchasing power parity; unit root; structural break. (search for similar items in EconPapers)
JEL-codes: F13 F31 F41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2007
New Economics Papers: this item is included in nep-cba and nep-ifn
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