IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-08c20062.html
   My bibliography  Save this article

Purchasing power parıty with multiple structural breaks: evidence from Turkey

Author

Listed:
  • Nilgün Çil Yavuz

    (Istanbul University)

Abstract

This paper aims to test the validity of the purchasing power parity hypothesis by analyzing the stochastic behavior of Turkey`s real exchange rate for the period 1990–2006. For this purpose, the minimum LM unit root test with two structural breaks is applied to real exchange rate data, which consists of monthly series of CPI-based real exchange rate index. The test results indicate that real exchange rate is trend-stationary. Following Papell and Prodan (2006), the trend-stationary real exchange rate can be interpreted as evidence that supports the validity of the Trend Qualified PPP (TQPPP) for Turkey. This result also suggests that shocks do not have any permanent effect on the real exchange rate in Turkey.

Suggested Citation

  • Nilgün Çil Yavuz, 2009. "Purchasing power parıty with multiple structural breaks: evidence from Turkey," Economics Bulletin, AccessEcon, vol. 29(2), pages 1201-1210.
    • Handle: RePEc:ebl:ecbull:eb-08c20062
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I2-P67.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    2. Narayan, Paresh Kumar, 2008. "The purchasing power parity revisited: New evidence for 16 OECD countries from panel unit root tests with structural breaks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 137-146, April.
    3. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 3, number 3.
    4. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
    5. Hegwood, Natalie D & Papell, David H, 1998. "Quasi Purchasing Power Parity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-289, October.
    6. Narayan Paresh K & Prasad Biman Chand, 2005. "The Validity of Purchasing Power Parity Hypothesis for Eleven Middle Eastern Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 3(2), pages 44-58, August.
    7. Lothian, James R. & Taylor, Mark P., 1997. "Real exchange rate behavior," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 945-954, December.
    8. Sabate, Marcela & Gadea, Maria Dolores & Serrano, Jose Maria, 2003. "PPP and structural breaks. The peseta-sterling rate, 50 years of a floating regime," Journal of International Money and Finance, Elsevier, vol. 22(5), pages 613-627, October.
    9. Wu, Yangru, 1996. "Are Real Exchange Rates Nonstationary? Evidence from a Panel-Data Test," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 54-63, February.
    10. Kalyoncu, Huseyin & Kalyoncu, Kahraman, 2008. "Purchasing power parity in OECD countries: Evidence from panel unit root," Economic Modelling, Elsevier, vol. 25(3), pages 440-445, May.
    11. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688, Elsevier.
    12. Papell, David H. & Prodan, Ruxandra, 2006. "Additional Evidence of Long-Run Purchasing Power Parity with Restricted Structural Change," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1329-1349, August.
    13. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
    14. Paresh Kumar Narayan, 2006. "Are bilateral real exchange rates stationary? Evidence from Lagrange multiplier unit root tests for India," Applied Economics, Taylor & Francis Journals, vol. 38(1), pages 63-70.
    15. André Sapir & Jaime de Melo, 1991. "Trade theory and economic reform: North, South and East," ULB Institutional Repository 2013/8084, ULB -- Universite Libre de Bruxelles.
    16. Paresh Kumar Narayan, 2005. "New evidence on purchasing power parity from 17 OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 1063-1071.
    17. Lucio Sarno, 2000. "Real exchange rate behaviour in high inflation countries: empirical evidence from Turkey, 1980-1997," Applied Economics Letters, Taylor & Francis Journals, vol. 7(5), pages 285-291.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Václav Žďárek, 2012. "An Empirical Investigation of the Purchasing Power Parity Hypothesis in European Transition Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2012(3), pages 257-276.
    2. Hakan Kum, 2012. "The Impact of Structural Break(s) on the Validity of Purchasing Power Parity in Turkey: Evidence from Zivot-Andrews and Lagrange Multiplier Unit Root Tests," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 241-245.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ahmad Zubaidi Baharumshah & Siew-Voon Soon, 2012. "Mean reversion in bilateral real exchange rates: evidence from the Malaysian ringgit," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2921-2933, August.
    2. Natalie D. Hegwood & Hiranya K. Nath, 2014. "Real exchange rate dynamics: Evidence from India," Economic Analysis and Policy, Elsevier, vol. 44(4), pages 396-404.
    3. Paresh Kumar Narayan & Biman Chand Prasad, 2008. "Are shocks to real effective exchange rates permanent or transitory? Evidence from Pacific Island countries," Applied Economics, Taylor & Francis Journals, vol. 40(8), pages 1053-1060.
    4. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-1042, November.
    5. Zeynel Abidin Ozdemir & Emre Aksoy, 2015. "Are real exchanges rate series really persistent?: evidence from three commonwealth of independent states countries," Applied Economics, Taylor & Francis Journals, vol. 47(40), pages 4299-4309, August.
    6. Papell, David H., 2002. "The great appreciation, the great depreciation, and the purchasing power parity hypothesis," Journal of International Economics, Elsevier, vol. 57(1), pages 51-82, June.
    7. Huseyin Kalyoncu, 2009. "New evidence of the validity of purchasing power parity from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 63-67.
    8. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December.
    9. Xie, Zixiong & Chen, Shyh-Wei & Hsieh, Chun-Kuei, 2021. "Facing up to the polysemy of purchasing power parity: New international evidence," Economic Modelling, Elsevier, vol. 98(C), pages 247-265.
    10. Maican, Florin G. & Sweeney, Richard J., 2013. "Real exchange rate adjustment in European transition countries," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 907-926.
    11. Mario Gómez Aguirre & José Carlos A. Rodríguez Chávez, 2012. "Análisis de la paridad del poder de compra: evidencia empírica entre México y Estados Unidos," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 27(1), pages 169-207.
    12. Gawon Yoon, 2009. "Are real exchange rates more likely to be stationary during the fixed nominal exchange rate regimes?," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 17-22.
    13. Lean Hooi Hooi & Russell Smyth, 2007. "Are Asian real exchange rates mean reverting? Evidence from univariate and panel LM unit root tests with one and two structural breaks," Applied Economics, Taylor & Francis Journals, vol. 39(16), pages 2109-2120.
    14. Baharumshah, Ahmad Zubaidi & Chan, Tze-Haw & Aggarwal, Raj, 2006. "The Changing Dynamics of the East Asian Real Exchange Rates after the Financial Crisis: Further Evidence on Mean Reversion," MPRA Paper 6090, University Library of Munich, Germany, revised 22 Nov 2007.
    15. Ritesh Kumar Mishra & Sanjay Sehgal, 2011. "Exchange rates and prices in purchasing power parity framework: Are bilateral real exchange rates stationary?," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 4(3), pages 274-286.
    16. Caporale, Guglielmo Maria & Cerrato, Mario, 2004. "Panel Data Tests of PPP. A Critical Overview," Economics Series 159, Institute for Advanced Studies.
    17. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.
    18. M.Abimbola OYINLOLA & Luwatosin ADENIYI & Nd Festus O.EGWAIKHIDE*, 2011. "Purchasing Power Parity Hypothesis in the Selected African Countries," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 21, pages 93-110.
    19. Marcos José Dal Bianco, 2008. "Argentinean real exchange rate 1900-2006, test purchasing power parity theory," Estudios de Economia, University of Chile, Department of Economics, vol. 35(1 Year 20), pages 33-64, June.
    20. Ali Acaravci & Ilhan Ozturk, 2010. "Testing Purchasing Power Parity in Transition Countries: Evidence from Structural Breaks," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 12(27), pages 190-198, February.

    More about this item

    Keywords

    Exchange rate;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-08c20062. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.