Empirical Investigation of Purchasing Power Parity for Turkey: Evidence from Recent Nonlinear Unit Root Tests

No 1604, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

Abstract: This study explores the empirical validity of the purchasing power parity (PPP) hypothesis between Turkey and its four major trading partners, the European Union, Russia, China and the US. Accounting for the possible nonlinear nature of real exchange rates, mainly due to the existence of transaction costs, we employ a battery of recently developed nonlinear unit root tests. Empirical results reveal that nonlinear unit root tests deliver stronger evidence in favor of the PPP hypothesis when compared to the conventional unit root tests only if nonlinearities in real exchange rates are correctly specified.

Keywords: Purchasing Power Parity; Real Exchange Rate; Nonlinearity; Smooth Transition (search for similar items in EconPapers)
JEL-codes: C22 C61 F31 F41 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2016-04, Revised 2016-04
New Economics Papers: this item is included in nep-ara, nep-cwa, nep-opm and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:1604

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