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Testing international parity hypothesis in a multivariate identified co-integrating system: the Turkish evidence

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  • Levent, Korap

Abstract

In this paper, a multivariate co-integrating model is constructed upon the Turkish economy to examine the validity of the purchasing power parity and the uncovered interest parity theories simultaneously. Estimation results obtained from the identified co-integrating vectors support a priori modelling expectations and yield evidence to the existence of both parities when integrated within each other. However, no evidence is obtained in favor of the two international exchange rate determination parity hypotheses when formulated in isolation. A policy inference derived from the paper can be summarized such that, since the market mechanisms seem to closely affect the long-run course of the nominal exchange rate, exchange rate based stabilization programs should be appreciated by economic agents in a cautious way.

Suggested Citation

  • Levent, Korap, 2008. "Testing international parity hypothesis in a multivariate identified co-integrating system: the Turkish evidence," MPRA Paper 20020, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:20020
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    File URL: https://mpra.ub.uni-muenchen.de/20020/1/MPRA_paper_20020.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Purchasing Power Parity ; Uncovered Interest Parity ; Turkish Economy ;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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