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Investigation of the Validity of Purchasing Power Parity Hypothesis with Fourier Unit Root Tests: The Case of Turkey

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  • Mücahit Aydın

    (İstanbul Üniversitesi, Sosyal Bilimler Enstitüsü, Ekonometri ve İstatistik Anabilim Dalı, İstanbul, Türkiye.)

Abstract

Purchasing power parity is one of the most frequently discussed economic theories in the literature. Furthermore, the validity of purchasing power parity is important in terms of being a common exchange rate used in international comparison. In this study, the validity of purchasing power parity was examined using Fourier unit root tests for Turkey for the period 1992:01-2018:12. In order to make a comparison, two different recently developed unit root tests were used in the study. The results show that the purchasing power parity hypothesis is valid for Turkey. Accordingly, the real exchange rate is stationary and the shocks on the real exchange rate is temporary in this period. According to overall results, it is expected that PPP play an active role in monetary policy decisions.

Suggested Citation

  • Mücahit Aydın, 2019. "Investigation of the Validity of Purchasing Power Parity Hypothesis with Fourier Unit Root Tests: The Case of Turkey," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 30(0), pages 35-48, June.
    • Handle: RePEc:ist:ekoist:v:30:y:2019:i:0:p:35-48
    DOI: 10.26650/ekoist.2018.30.0001
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    More about this item

    Keywords

    Purchasing Power Parity; Nonlinearity; Fourier; Real Exchange Rate; Unit Root Tests;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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