Relative productivity increases and the appreciation of the Turkish lira

Kenan Lopcu, Fikret Dülger and Almıla Burgaç

Economic Modelling, 2013, vol. 35, issue C, 614-621

Abstract: This paper studies the Balassa–Samuelson hypothesis between Turkey and 27 members of the European Union. More specifically, using recently developed cointegration techniques with multiple breaks, we test the relationship between the real effective exchange rate and inter-country differences in the relative productivity of the tradable and non-tradable sectors over the period 1990:Q1–2011:Q2. In recent years, the Central Bank of the Republic of Turkey (CBRT) has emphasized the importance of the B–S hypothesis for Turkey. Our findings, however, suggest that changes in relative productivity have played a limited role in explaining the real effective exchange rate appreciation. In particular, the relationship between the real effective exchange rate and productivity indicated by the Balassa–Samuelson hypothesis is not supported for the post 2001 era in Turkey.

Keywords: Balassa–Samuelson hypothesis; Real effective exchange rate; Relative productivity; Cointegration; Multiple structural breaks (search for similar items in EconPapers)
JEL-codes: C22 E31 F31 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:35:y:2013:i:c:p:614-621

DOI: 10.1016/j.econmod.2013.08.005

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