Mean Reversion of Real Exchange Rates and Purchasing Power Parity in Turkey
AbstractThe important concept of purchasing power parity (PPP) has a number of practical implications. Our central objective is to examine the stationarity of Turkeyâ€™s real exchange rates to test for the empirical validity of PPP. Our results from conventional univariate unit root tests fail to support PPP. However, when we use the empirical methodology developed by Caner and Hansen (2001), which allows us to jointly consider non-stationarity and non-linearity, we find evidence of non-linear mean reversion in Turkeyâ€™s real exchange rates. This implies that PPP holds in one threshold regime but not in another.
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Date of creation: 11 Aug 2004
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Turkey; purchasing power parity; real exchange rate; unit root; non-linearity;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-10-30 (All new papers)
- NEP-CWA-2004-10-30 (Central & Western Asia)
- NEP-IFN-2004-10-30 (International Finance)
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