The real exchange rate: an alternative approach to the PPP puzzle

Demographic transition and the real exchange rate in Australia: An empirical investigation

“…Using time series econometric methods, the paper finds that the real exchange rate bears long-run cointegrating relation with productivity differential and a demographic variable, namely, the relative size of young dependents cohort. The findings of this paper accord closely with those of previous studies (such as Corbae and Ouliaris, 1991;Lee et al, 2002;Henry and Olekalns, 2002;Darné and Hoarau, 2008) that find that Australia's real exchange rate does not show mean-reversion and economic fundamentals have permanent impact on it. The contribution of this paper is that in addition to productivity bias, it unveils another influence, namely population cohort that has a long-run permanent influence on the real exchange rate.…”

“…Productivity differentials (Lowe, 1992;Lee et al, 2002) and real interest rate differentials (Gruen and Wilkinson, 1991) have also been found to be important factors affecting Australia's real exchange rate. Recently, employing a macroeconomic balance approach Dvornak et al (2005) conclude that an increase in Australia's current account deficit is consistent with an appreciation of its real exchange rate.…”

“…Although some studies (e.g., Olekalns and Wilkins, 1998;Tawadros, 2002) argue that Australia's real exchange rate is mean reverting and hence economic fundamentals do not have any permanent impact on the real exchange rate, the majority of studies point to the contrary, for example Corbae and Ouliaris (1991); Lee et al (2002); Henry and Olekalns (2002); Darné and Hoarau (2008); Hassan and Salim (2011). These papers suggest that economic fundamentals have permanent impact on Australia's real exchange rate.…”

A study on exchange rate risk through lagged predictors, market risk and financial sector indicators: Time series analysis from Kuwait

“…The results through the method of generalized variance decompositions proved that essentials such as productivity differential elucidate a little and cannot be blamed for all the variations of the real exchange. In addition, Lee et al (2002) found some real variables, namely trade and its terms along with industry output to have long-run significant impacts on real exchange rate. However, the nominal variables, are found to be insignificantly associated with the exchange rate in the selection regions.…”

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

“…This close association has been empirically validated and it indicates that the shocks to Australian real exchange rate are permanent. A number of studies have confirmed this non-mean-reverting property of Australia's real exchange rate, such as, Corbae and Ouliaris (1991), Lee et al (2002), Henry and Olekalns (2002), Hoarau (2007 and. Despite this much supported view that Australia's real exchange rate is not mean-reverting, very recently Cuestas and Regis (2008) reignite the issue by arguing that shocks to Australia's real exchange rate is short-lived and it reverts to its mean value in the long-run.…”