Purchasing Power Parity Across States and Goods Within Australia.

Panel unit root tests show that intranational purchasing power parity (PPP) cannot be rejected across major cities in Australia over the period from 1972 to 1999. The persistence of deviations in response to shocks is low, as measured by the estimated exact half-life of 5 to 7 quarters. This is much lower than results for similar tests done on US cities, and for international PPP tests. The food CPI is largely responsible for the fast convergent results for city CPIs. Intranational PPP was rejected for the floating exchange rate period from 1984 to 1991 when inflation was high and not specifically targeted by the central bank.