Real exchange rate behaviour in high inflation countries: empirical evidence from Turkey, 1980-1997

Lucio Sarno

118 citations0/0 files storedApplied Economics Letters

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Abstract

The long-run purchasing power parity (PPP) hypothesis is re-examined using data for Turkey and its major trading partners during the period 1980–97, extending recent work by Telatar and Kazdagli. The empirical analysis suggests that, while conventional unit root tests do not enable the detection of mean reversion in real exchange rates and hence imply rejection of long-run PPP over the sample, using recently developed nonlinear modelling techniques, strong support is provided for the validity of long-run PPP as well as for theoretical models which predict nonlinear adjustment in real exchange rates. Results are in accord with previous evidence that PPP holds more closely on data for countries which have experienced unusually high inflation.

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References

1988Testing for a Unit Root in Time Series Regression 1988Statistical analysis of cointegration vectors 1996The Purchasing Power Parity Puzzle 1996Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries 1998The behavior of real exchange rates during the post-Bretton Woods period 1976A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence 1990Purchasing Power Parity in the Long Run 1997Transactions Costs and Nonlinear Adjustment in Real Exchange Rates; An Empirical Investigation

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2006Purchasing Power Parity in economies in transition: evidence from Central and East European countries 2003The purchasing power parity hypothesis for a high inflation country: a re-examination of the case of Turkey 2003The inadequacy of linear autoregressive model for real exchange rates: empirical evidence from Asian economies 2003The Nature of Persistence in Turkish Real Exchange Rates 2003Asian real interest rates, nonlinear dynamics, and international parity

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