Investigation of the Validity of Purchasing Power Parity Hypothesis with Fourier Unit Root Tests: The Case of Turkey

Mücahit Aydın

EKOIST Journal of Econometrics and Statistics, 2019, vol. 30, issue 0, 35-48

Abstract: Purchasing power parity is one of the most frequently discussed economic theories in the literature. Furthermore, the validity of purchasing power parity is important in terms of being a common exchange rate used in international comparison. In this study, the validity of purchasing power parity was examined using Fourier unit root tests for Turkey for the period 1992:01-2018:12. In order to make a comparison, two different recently developed unit root tests were used in the study. The results show that the purchasing power parity hypothesis is valid for Turkey. Accordingly, the real exchange rate is stationary and the shocks on the real exchange rate is temporary in this period. According to overall results, it is expected that PPP play an active role in monetary policy decisions.

Keywords: Purchasing Power Parity; Nonlinearity; Fourier; Real Exchange Rate; Unit Root Tests (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:ist:ekoist:v:30:y:2019:i:0:p:35-48

DOI: 10.26650/ekoist.2018.30.0001

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