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

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  • Dilem Yıldırım

    (Department of Economics, METU)

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.

Suggested Citation

  • Dilem Yıldırım, 2016. "Empirical Investigation of Purchasing Power Parity for Turkey: Evidence from Recent Nonlinear Unit Root Tests," ERC Working Papers 1604, ERC - Economic Research Center, Middle East Technical University, revised Apr 2016.
    • Handle: RePEc:met:wpaper:1604
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    References listed on IDEAS

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    2. Andreea-Daniela GANGONE & Mariana-Cristina GANESCU & Mihaela ASANDEI, 2018. "An Analysis Of The Effect Of Purchasing Power Parity On National Competitiveness And Human Development In 21 European Countries," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 3(1), pages 152-165.

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    More about this item

    Keywords

    Purchasing Power Parity; Real Exchange Rate; Nonlinearity; Smooth Transition;
    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
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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