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Relative productivity increases and the appreciation of the Turkish lira

Author

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  • Lopcu, Kenan
  • Dülger, Fikret
  • Burgaç, Almıla

Abstract

This paper studies the Balassa–Samuelson hypothesis between Turkey and 27 members of the European Union. More specifically, using recently developed cointegration techniques with multiple breaks, we test the relationship between the real effective exchange rate and inter-country differences in the relative productivity of the tradable and non-tradable sectors over the period 1990:Q1–2011:Q2. In recent years, the Central Bank of the Republic of Turkey (CBRT) has emphasized the importance of the B–S hypothesis for Turkey. Our findings, however, suggest that changes in relative productivity have played a limited role in explaining the real effective exchange rate appreciation. In particular, the relationship between the real effective exchange rate and productivity indicated by the Balassa–Samuelson hypothesis is not supported for the post 2001 era in Turkey.

Suggested Citation

  • Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, vol. 35(C), pages 614-621.
  • Handle: RePEc:eee:ecmode:v:35:y:2013:i:c:p:614-621
    DOI: 10.1016/j.econmod.2013.08.005
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    More about this item

    Keywords

    Balassa–Samuelson hypothesis; Real effective exchange rate; Relative productivity; Cointegration; Multiple structural breaks;
    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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