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Mean Reversion of Real Exchange Rates and Purchasing Power Parity in Turkey

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  • Joseph D. ALBA
  • Donghyun PARK

Abstract

The important concept of purchasing power parity (PPP) has a number of practical implications. Our central objective is to examine the stationarity of Turkey’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 Turkey’s real exchange rates. This implies that PPP holds in one threshold regime but not in another.

Suggested Citation

  • Joseph D. ALBA & Donghyun PARK, 2004. "Mean Reversion of Real Exchange Rates and Purchasing Power Parity in Turkey," Econometric Society 2004 Far Eastern Meetings 530, Econometric Society.
    • Handle: RePEc:ecm:feam04:530
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    References listed on IDEAS

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    1. Sarantis, Nicholas, 1999. "Modeling non-linearities in real effective exchange rates," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 27-45, January.
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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