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Before The Fall Was The Turkish Lira Overvalued?

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  • Irfan Civcir

    ()
    (Ankara University, Faculty of Political Sciences)

Abstract

This paper examines validity of purchasing power parity to evaluate whether the Turkish Lira was overvalued on the eve of 2001 crises. Univariate and multivariate time series techniques are used to test whether the real exchange rate is mean reverting. Half-life of deviation from purchasing power parity for various definitions is derived. The Johansen cointegration test procedure is applied to bilateral exchange rates using CPI and WPI price indexes. Finally, different measures of misalignments are calculated. Evidence provided that calculated half lives are, in general, short compared to low inflation countries. Further, data supports the long-run relationships among exchange rates, domestic and foreign prices. Calculated misalignments give mixed results on bilateral exchange rates based on CPI and WPI. While WPI based bilateral real exchange rate gives under valuation, the CPI based bilateral real exchange rate and trade weighted real exchange rates based on WPI reveals that TL was overvalued before the eve of 2001 crises.

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Bibliographic Info

Paper provided by Economic Research Forum in its series Working Papers with number 0220.

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Length: 18 pages
Date of creation: Jul 2002
Date of revision: Jul 2002
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:0220

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Cited by:
  1. Levent KORAP, 2008. "Exchange Rate Determination Of Tl/Us$:A Co-Integration Approach," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 7(1), pages 24-50, May.
  2. Levent, Korap, 2007. "Modeling purchasing power parity using co-integration: evidence from Turkey," MPRA Paper 19584, University Library of Munich, Germany.
  3. Alper, Ahmet Murat & Civcir, İrfan, 2012. "Can overvaluation prelude to crisis and harm growth in Turkey," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 112-131.
  4. Sengül Dagdeviren & Ayla Ogu? Binatli & Niloufer Sohrabji, 2012. "Misalignment Under Different Exchange Rate Regimes: the Case of Turkey," Economie Internationale, CEPII research center, issue 130, pages 81-98.
  5. Yucel, Eray, 2011. "A Review and Bibliography of Early Warning Models," MPRA Paper 32893, University Library of Munich, Germany.
  6. Levent, Korap, 2007. "Information content of exchange rate volatility: Turkish experience," MPRA Paper 19598, University Library of Munich, Germany.
  7. Levent, Korap, 2007. "Analyzing CBRT's FOREX interventions using EGARCH (2001-2006)," MPRA Paper 20634, University Library of Munich, Germany.
  8. Aykut Kibritcioglu & Bengi Kibritcioglu, 2004. "Real Exchange Rate Misalignment in Turkey, 1987-2003 (in Turkish)," Macroeconomics 0403006, EconWPA, revised 09 Mar 2004.

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