Testing the Validity of PPP Theory for Turkey: Nonlinear Unit Root Testing

Abstract

Real exchange rate movements are crucial for a country's competitiveness, trade flows and testing the validity of Purchasing Power Parity (PPP) theory. So far ample of studies have examined the issue of whether or not PPP holds in Turkey by employing various methods. In this study we examined the validity of PPP theory for Turkey between January 2003 and June 2014, and we concluded that purchasing power parity theory is not valid according to the results of nonlinear unit root test.