Corbae and Ouliaris (1991) examined Australia's long-nm real exchange rate
and concluded that because the data follow a random walk, purchasing power
parity does not hold as a long-run equilibrium relation. We re-examine thei
r data by calculating non-parametric measures of persistence and estimating
functionally integrated ARMA models. We find that shocks to the real excha
nge rate have a finite life. This result is consistent with long-run purcha
sing power parity.