Abstract:

In this study, the validity of the theory of purchasing power parity for the 1990:01-2014:12 period USD/TL currency currency was tested. The work has two main objectives. First, to determine whether PPP in Turkey is a valid currency rate determination model. Secondly, it is to reveal whether the price index preferences and the econometric methods used affect the validity of PPP. In this context, for the real exchange rate based on the Consumer and Producer Price Index; for the ADF, DF-GLS and PP unit root tests and for the nominal exchange rate and price difference variables Engle-Granger (1987) and Johansen (1988) co-integration tests have been implemented. Unit root test results (stable + trending) showed that PPP in Turkey is an invaluable approach according to both the manufacturer price index. On the other hand, if co-integration and unit root tests (stable) showed that only PPI-based analyses gave results in favour of PPP. Under these findings, PPP is believed to provide a general trend for currency movements, with another expression that it is a long-term theory for the USD/TL currency exchange rate, though it shows short-term deviations.

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