The Nature of Shocks to Turkish exchange rates: what panel approach says?

Ceyhun Can Ozcan (ccozcan@konya.edu.tr), Ahmet Sahbaz (asahbaz@gmail.com), Ugur Ad?guzel (uadiguzel@cumhuriyet.edu.tr) and Saban Nazlioglu
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Ceyhun Can Ozcan: Necmettin Erbakan University
Ugur Ad?guzel: Cumhuriyet University,

No 401591, Proceedings of Economics and Finance Conferences from International Institute of Social and Economic Sciences

Abstract: This paper investigates the behavior of Turkish exchange rates within the context of purchasing power parity (PPP) hypothesis, -employing ten Turkish real exchange rates during January 2002-May 2012-, by means of recent developments in panel unit root testing procedures. When we account for nonlinearity, smooth structural shifts, and cross-section dependency, the empirical analysis supports that PPP hypothesis is valid for Eurozone and European countries (Denmark, Norway, Sweden, Switzerland, and United Kingdom), while it does not hold for non-European trading partners (Canada, Japan, Saudi Arabia, and USA). From the empirical results, we can conclude that PPP hypothesis is hold in the countries which have the free trade agreement, while it is violated in the countries in which there are trade barriers and greater distance. The findings therefore provide important policy implications for Turkey about determining equilibrium exchange rates with Eurozone and other European Union countries.

Keywords: Purchasing power parity; Turkey; panel unit root (search for similar items in EconPapers)
JEL-codes: C23 F31 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2014-07
New Economics Papers: this item is included in nep-ara, nep-cwa and nep-opm
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Published in Proceedings of the Proceedings of the 2nd Economics & Finance Conference, Vienna, Jul 2014, pages 440-459

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iefpro:0401591

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