The purchasing power parity hypothesis in Turkey: evidence from nonlinear STAR error correction models

Abstract

This study re-examines the validity of long-run purchasing power parity (PPP) hypothesis for Turkey using nonlinear cointegration technique. The finding of this article provides the evidence that the long run PPP hypothesis is valid by using nonlinear cointegration technique. This finding argues the validity of the long-run PPP hypothesis in bilateral Turkish real exchange rates with the USA, which is also supported by Sarno (2000 Sarno, L. 2000. Real exchange rate behaviour in high inflation countries: empirical evidence from Turkey, 1980–1997. Applied Economics Letters, 7: 285–91. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]) and Erlat (2004 Erlat, H. 2004. Unit roots or nonlinear stationarity in Turkish real exchange rates. Applied Economics Letters, 11: 645–50. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]).

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