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An Analysis of Purchasing Power Parity for the Turkish Economy Using Unit Root Testing with Multiple Structural Breaks

Author

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  • Betül GÜR

    (Ýstanbul Ticaret Üniversitesi)

Abstract

The application of the law of one price to the international market is purchasing power parity. Purchasing power parity associates the prices of all goods used in foreign trade with the exchange rate. If the purchasing power parity is valid, the changes in the nominal exchange rates balance the changes at the price levels among countries. Thus, the real exchange rate fluctuates about a fixed average. For this, the testing of the purchasing power parity can be done through studying the unit root properties of the real exchange rate. In this study, the real exchange rate for Turkey has been examined using unit root tests with standard and multiple breaks. It has been determined that purchasing power parity is not valid in the Turkish economy.

Suggested Citation

  • Betül GÜR, 2015. "An Analysis of Purchasing Power Parity for the Turkish Economy Using Unit Root Testing with Multiple Structural Breaks," Eurasian Eononometrics, Statistics and Emprical Economics Journal, Eurasian Academy Of Sciences, vol. 1(1), pages 32-42, April.
    • Handle: RePEc:eas:econst:v:1:y:2015:i:1:p:32-42
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    More about this item

    Keywords

    Purchasing Power Parity; Real Exchange Rate; Structural Break Unit Root Tests; The Law of One Price; International Trade;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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