The Purchasing Power Parity Hypothesis for a High Inflation Country: A Re-Examination of the Case of Turkey

Posted: 6 Sep 2010

Date Written: September 5, 2010

Abstract

The long-run purchasing power parity (PPP) hypothesis is re-examined for Turkey and strong evidence on long-run PPP is provided by using standard multivariate cointegration techniques. It is argued that the refutation of PPP by Telatar and Kazdagli does not necessarily imply the failure of taking the nonlinearity in real exchange rate adjustment into account, as proposed by Sarno, but it may be due to the use of univariate framework for testing PPP chosen by Telatar and Kazdaglı. By using persistence profiles, half-life deviations from PPP are estimated as low as one and a half years. Since these estimates are substantially lower than those previously obtained in the literature, the analysis suggests that high inflation environment does not constitute a case for the PPP puzzle.

Keywords: Purchasing Power Parity, Turkey, PPP puzzle

JEL Classification: F41, C32

Suggested Citation

Yazgan, Mustafa Ege, The Purchasing Power Parity Hypothesis for a High Inflation Country: A Re-Examination of the Case of Turkey (September 5, 2010). Applied Economics Letters, Vol. 10, 2003, Available at SSRN: https://ssrn.com/abstract=1672473

Mustafa Ege Yazgan (Contact Author)

Istanbul Bilgi University ( email )

Eski Silahtarağa Elektrik Santralı
Silahtarağa Mah. Kazım Karabekir Cad. No: 1 Eyüp
Istanbul, 34060
Turkey

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