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FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY

Year 2015, Volume: 26 Issue: 78, 100 - 118, 27.08.2015

Vedat Sarıkovanlık Musa Gün

Abstract

Exchange rates are among the important indicators that affect the economic activities. It is well known that sharp changes occurring in the exchange rates affect severely the course of economic activities.  In Turkey throughout 1990s, exchange rate policy is especially used as a tool to balance the Turkish economy. After severe costs of fixed exchange rate system, Turkey has adopted floating system in 2001. This study provides new empirical evidence regarding the impact of alternative exchange rate regimes on Turkish economy. The methodology that is used is EG cointegration and Johansen VAR techniques. The evidence points out PPP held under the floating exchange rate regime.

Keywords

Exchange Rate Regime Purchasing Power Parity Unit Root Cointegration

References

  • Alba, J. D. and Park, D., 2005, “An empirical investigation of purchasing power parity (PPP) for Turkey”, Journal of Policy Modeling, vol. 27, 989-1000.
  • Asteriou, D., Hall, S.G., “Applied Econometrics”, Palgrave Macmillan, 2007.
  • Bahmani-Oskooee, M., & Mirzai, A., 2000, “Real and nominal effective exchange rates for developing countries: 1973: 1-1997: 3”, Applied Economics, 32(4), 411- 4
  • Brooks, C., 2008, Introductory Econometrics for Finance, Cambridge University
  • Press, Cambridge, 2ndEdition, pp: 341, 350, 351,355,356,359. B. Bossone, 2008, IMF Surveillance: A Case Study on IMF Governance,
  • Independent Evaluation Office of theInternetionalMonetaryFund Background Paper. Cassel, G., 1918, “Abnormal Deviations in International Exchanges”, Economic Journal, vol.28, 413-428.
  • Cerrato,M. and N.Sarantis, 2007, “Symmetry, Proportionality and the Purchasing
  • Power Parity: Evidence from Panel Cointegration Tests”, International Review of Economics and Finance, forthcoming. Chakrabarti, A., 2006, “Real Exchange Rates and Real Interest Rates Once Again: A
  • Multivariate Panel Cointegration Analysis”, Applied Economics, 28, pp: 1217-1221.
  • Chen, S.L., Wu, J.L., 2000, “A re-examination of purchasing power parity in Japan and Taiwan”, Journal of Macroeconomic, 22 (2), 271–284.
  • Cheung, Y.W., Lai, K.S., Bergman, M., 2004, “Dissecting the PPP puzzle: the unconventional roles of nominal exchange rate and price adjustments”, Journal of
  • International Economics, 64, 135–150. Crowder, J.W., 1996, “A reexamination of long-run PPP: the case of Canada, the UK, and the US”, Review of International Economics, 4, 64–78.
  • Cushman, D.O., 2008, “Real exchange rates may have nonlinear trends”,
  • International Journal of Finance and Economics, 13 (2), 158–173. Dickey, D. A. and Fuller, W. A., 1979, “Distribution of the Estimators for
  • Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, 74, p. 427-431. Enders, W., 1989, “Unit roots and the reel exchange rate before World War I: the case of Britain and the USA”, Journal of International Money and Finance, 8, 59–
  • Enders, W., Dibooglu, S., 2001, “Long run purchasing power parity with asymmetric adjustment”, Southern Economic Journal, vol.68, issue 2, pp. 433-445.
  • Engle, R.F. and Granger, C. W.J, 1987, “Co-integration and Error Correction:
  • Representation, Estimation and Testing”, Econometrica, 55, 251–76. Erlat H., 2003, “The Nature of Persistence in Turkish Real Exchange Rates”,
  • Emerging Markets Finance and Trade, 39, 70-97. Frankel, J.A. and Rose, A.K, 1996, “Currency crashes in emerging markets: An empirical treatment”, Journal of International Economics, 41(3-4), 351-366.
  • Fritsche, C.P., Wallace, M., 1997, “Forecasting the exchange rate PPP versus a random walk”, Economics Letters, 54, 69–74.
  • Froot, K.A. and K. Rogoff, 1995, “Perspectives on PPP and Long-run Real Exchange
  • Rates”, In: Grossman, G., Rogoff, K., Handbook of International Economics, Vol. 3. North-Holland, Amsterdam, pp. 1647-1688.
  • Goudarzi, H. and Ramanarayanan, C. S., 2011, “Empirical Analysis of the Impact of
  • Foreign Institutional Investment on the Indian Stock Market Volatility during World Financial Crisis 2008-09”, International Journal of Economics and Finance, 3(3), p2
  • Hallwood, P., MacDonald, R., 1986, International Money, Theory, Evidence and Institutions. Blackwell, Oxford.
  • Hendry, D.F and Juselius, K., 2000, “Explaining Cointegration Analysis: Part I”, Energy Journal, 21, 1-42.
  • Johansen, S., 1988, “Statistical analysis of cointegration vectors”, Journal of
  • Economic Dynamics and Control, 12, 231–354. Johansen, S., Juselius, K., 1992, “Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK”, Journal of Econometric, 53, 211–244.
  • Kalyoncu H., 2009, “New evidence of the validity of purchasing power parity from
  • Turkey”, Applied Economics Letters, 16, 63–67. Kasman, S., Kasman, A., Ayhan, D., 2010, “Testing purchasing power parity hypothesis for the new member and candidate countries of the EU: Evidence from
  • Lagrange Multiplier unit root tests with structural breaks”, Emerging Markets Finance and Trades, 46, 53-65. Kim, H., Young, K.M., 2012, “Examining the evidence of purchasing power parity by recursive mean adjustment”, Economic Modelling, Vol.29, 5, 1850-1857.
  • Krugman, P. R., Obstfeld, M. 2003, Économie internationale , 4edt.
  • Kum, H., 2012, “The Impact of Structural Break(s) on the Validity of Purchasing
  • Power Parity in Turkey: Evidence from Zivot-Andrews and Lagrange Multiplier Unit Root Tests”, International Journal of Economics and Financial Issues, vol.2, no.3, 241-2
  • Lee, J. and Strazicich, M.C., 2004, “Minimum LM Unit Root Test with One
  • Structural Break”, Working Paper, Department of Economics, Appalachain State University. Officer, L.H., 1976, “The purchasing power parity theory of exchange rates: a review article” International Monetary Fund Staff Papers, 23, 1–60.
  • Officer, L.H., 1980, “Effective exchange rates and price ratios over the long run: a test of the purchasing-power-parity theory”, Canadian Journal of Economics, 13 (2), 206–230.
  • Özkan, F., 2013, “Comparing the forecasting performance of neural network and purchasing power parity: The case of Turkey”, Economic Modelling, Vol.31, 752- 7
  • P.C.B. Phillips and P. Perron, 1988, “Testing for a Unit Root in Time Series
  • Regression”, Biometrika, 75, 335–346. Reinhart Carmen M. and Todd Smith, R., 2001, “Temporary Controls on Capital
  • Inflows”, NBER Working Papers, 8422, National Bureau of Economic Research, Inc.
  • Rogoff, K., 1996, “The purchasing power parity puzzle”, Journal of Economic Literature, 34, 647–668.
  • Sarno, L. 2000, “Real exchange rate behavior in high inflation countries: empirical evidence from Turkey, 1980–1997”, Applied Economics Letters, 7, 285–91.
  • Sarno, L., 2005, “Towards a solution to the puzzles in exchange rate economics:
  • Where do we stand?”, Canadian Journal of Economics, 38, 673–708. Sarno, L., Taylor, M.P., 2002, “Purchasing power parity and the real exchange rate”,
  • International Monetary Fund Staff Papers, 49, 65–105. Sarno, L., Valente, G., 2006, “Deviations from Purchasing Power Parity Under
  • Different Exchange Rate Regimes: Do They Revert and, If So, How?”, Journal of Banking and Finance, 30 (11), 3147-3169.
  • Serletis, A., Zimonopoulos, G., 1997, “Breaking trend functions in real exchange rates: evidence from seventeen OECD countries”, Journal of Macroeconomics, 19, 781–802.
  • Stiglitz, J. E., 2002, “Globalization and Its Discontents”, New York: Norton.
  • Sulku, S.N., 2010, “Econometric testing of purchasing power parity in less developed countries:fixed and flexible exchange rate regime experiences” Applied Economics, 42:20, 2617-2630.
  • Tastan, H., 2005, Do real exchange rates contain a unit root? Evidence from Turkish data, Applied Economics, 37, 2037–53.
  • Telatar, E. and Kazdaglı, H., 1998, “Re-examine the long-run purchasing power parity hypothesis for a high inflation country: the case of Turkey 1980–93”, Applied
  • Economics Letters, 5, 51–53. Xu, Z., 2003, “Purchasing power parity, price indices, and exchange rate forecasts”,
  • Journal of International Money and Finance, 22, 105–130. Yazgan, M. E., 2003, “The purchasing power parity hypothesis for a high inflation country: a re-examination of the case of Turkey”, Applied Economics Letters, 10, 143–147.

FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY

Year 2015, Volume: 26 Issue: 78, 100 - 118, 27.08.2015

Vedat Sarıkovanlık Musa Gün

Abstract

Ekonomik faaliyetleri etkileyen en önemli faktörlerden birisi döviz kuru seviyesidir. Çalkantılı dönemlerde gözlemlenen hızlı kur değişimleri ekonomik faaliyet ve sonuçları etkilemektedir. Türkiye’de 1990’lı yıllarda döviz kuru politikaları ile ekonomik sonuçlar dengelenmeye çalışılmıştır. Sabit kur rejiminin yarattığı sarsıcı etkileri sonucu dalgalı kur rejimine geçilmiştir. Bu çalışmada farklı kur rejimlerin Türkiye ekonomisi üzerindeki etkileri ko-entegrasyon ve VAR yöntemleri ile irdelenmiştir. Sonuç olarak satın alma gücü paritesinin (PPP) dalgalı kur rejiminde geçerli olduğu görülmüştür

Keywords

Döviz Kuru Rejimi Satın alma Gücü Paritesi Koentegrasyon

References

  • Alba, J. D. and Park, D., 2005, “An empirical investigation of purchasing power parity (PPP) for Turkey”, Journal of Policy Modeling, vol. 27, 989-1000.
  • Asteriou, D., Hall, S.G., “Applied Econometrics”, Palgrave Macmillan, 2007.
  • Bahmani-Oskooee, M., & Mirzai, A., 2000, “Real and nominal effective exchange rates for developing countries: 1973: 1-1997: 3”, Applied Economics, 32(4), 411- 4
  • Brooks, C., 2008, Introductory Econometrics for Finance, Cambridge University
  • Press, Cambridge, 2ndEdition, pp: 341, 350, 351,355,356,359. B. Bossone, 2008, IMF Surveillance: A Case Study on IMF Governance,
  • Independent Evaluation Office of theInternetionalMonetaryFund Background Paper. Cassel, G., 1918, “Abnormal Deviations in International Exchanges”, Economic Journal, vol.28, 413-428.
  • Cerrato,M. and N.Sarantis, 2007, “Symmetry, Proportionality and the Purchasing
  • Power Parity: Evidence from Panel Cointegration Tests”, International Review of Economics and Finance, forthcoming. Chakrabarti, A., 2006, “Real Exchange Rates and Real Interest Rates Once Again: A
  • Multivariate Panel Cointegration Analysis”, Applied Economics, 28, pp: 1217-1221.
  • Chen, S.L., Wu, J.L., 2000, “A re-examination of purchasing power parity in Japan and Taiwan”, Journal of Macroeconomic, 22 (2), 271–284.
  • Cheung, Y.W., Lai, K.S., Bergman, M., 2004, “Dissecting the PPP puzzle: the unconventional roles of nominal exchange rate and price adjustments”, Journal of
  • International Economics, 64, 135–150. Crowder, J.W., 1996, “A reexamination of long-run PPP: the case of Canada, the UK, and the US”, Review of International Economics, 4, 64–78.
  • Cushman, D.O., 2008, “Real exchange rates may have nonlinear trends”,
  • International Journal of Finance and Economics, 13 (2), 158–173. Dickey, D. A. and Fuller, W. A., 1979, “Distribution of the Estimators for
  • Autoregressive Time Series with a Unit Root”, Journal of the American Statistical Association, 74, p. 427-431. Enders, W., 1989, “Unit roots and the reel exchange rate before World War I: the case of Britain and the USA”, Journal of International Money and Finance, 8, 59–
  • Enders, W., Dibooglu, S., 2001, “Long run purchasing power parity with asymmetric adjustment”, Southern Economic Journal, vol.68, issue 2, pp. 433-445.
  • Engle, R.F. and Granger, C. W.J, 1987, “Co-integration and Error Correction:
  • Representation, Estimation and Testing”, Econometrica, 55, 251–76. Erlat H., 2003, “The Nature of Persistence in Turkish Real Exchange Rates”,
  • Emerging Markets Finance and Trade, 39, 70-97. Frankel, J.A. and Rose, A.K, 1996, “Currency crashes in emerging markets: An empirical treatment”, Journal of International Economics, 41(3-4), 351-366.
  • Fritsche, C.P., Wallace, M., 1997, “Forecasting the exchange rate PPP versus a random walk”, Economics Letters, 54, 69–74.
  • Froot, K.A. and K. Rogoff, 1995, “Perspectives on PPP and Long-run Real Exchange
  • Rates”, In: Grossman, G., Rogoff, K., Handbook of International Economics, Vol. 3. North-Holland, Amsterdam, pp. 1647-1688.
  • Goudarzi, H. and Ramanarayanan, C. S., 2011, “Empirical Analysis of the Impact of
  • Foreign Institutional Investment on the Indian Stock Market Volatility during World Financial Crisis 2008-09”, International Journal of Economics and Finance, 3(3), p2
  • Hallwood, P., MacDonald, R., 1986, International Money, Theory, Evidence and Institutions. Blackwell, Oxford.
  • Hendry, D.F and Juselius, K., 2000, “Explaining Cointegration Analysis: Part I”, Energy Journal, 21, 1-42.
  • Johansen, S., 1988, “Statistical analysis of cointegration vectors”, Journal of
  • Economic Dynamics and Control, 12, 231–354. Johansen, S., Juselius, K., 1992, “Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK”, Journal of Econometric, 53, 211–244.
  • Kalyoncu H., 2009, “New evidence of the validity of purchasing power parity from
  • Turkey”, Applied Economics Letters, 16, 63–67. Kasman, S., Kasman, A., Ayhan, D., 2010, “Testing purchasing power parity hypothesis for the new member and candidate countries of the EU: Evidence from
  • Lagrange Multiplier unit root tests with structural breaks”, Emerging Markets Finance and Trades, 46, 53-65. Kim, H., Young, K.M., 2012, “Examining the evidence of purchasing power parity by recursive mean adjustment”, Economic Modelling, Vol.29, 5, 1850-1857.
  • Krugman, P. R., Obstfeld, M. 2003, Économie internationale , 4edt.
  • Kum, H., 2012, “The Impact of Structural Break(s) on the Validity of Purchasing
  • Power Parity in Turkey: Evidence from Zivot-Andrews and Lagrange Multiplier Unit Root Tests”, International Journal of Economics and Financial Issues, vol.2, no.3, 241-2
  • Lee, J. and Strazicich, M.C., 2004, “Minimum LM Unit Root Test with One
  • Structural Break”, Working Paper, Department of Economics, Appalachain State University. Officer, L.H., 1976, “The purchasing power parity theory of exchange rates: a review article” International Monetary Fund Staff Papers, 23, 1–60.
  • Officer, L.H., 1980, “Effective exchange rates and price ratios over the long run: a test of the purchasing-power-parity theory”, Canadian Journal of Economics, 13 (2), 206–230.
  • Özkan, F., 2013, “Comparing the forecasting performance of neural network and purchasing power parity: The case of Turkey”, Economic Modelling, Vol.31, 752- 7
  • P.C.B. Phillips and P. Perron, 1988, “Testing for a Unit Root in Time Series
  • Regression”, Biometrika, 75, 335–346. Reinhart Carmen M. and Todd Smith, R., 2001, “Temporary Controls on Capital
  • Inflows”, NBER Working Papers, 8422, National Bureau of Economic Research, Inc.
  • Rogoff, K., 1996, “The purchasing power parity puzzle”, Journal of Economic Literature, 34, 647–668.
  • Sarno, L. 2000, “Real exchange rate behavior in high inflation countries: empirical evidence from Turkey, 1980–1997”, Applied Economics Letters, 7, 285–91.
  • Sarno, L., 2005, “Towards a solution to the puzzles in exchange rate economics:
  • Where do we stand?”, Canadian Journal of Economics, 38, 673–708. Sarno, L., Taylor, M.P., 2002, “Purchasing power parity and the real exchange rate”,
  • International Monetary Fund Staff Papers, 49, 65–105. Sarno, L., Valente, G., 2006, “Deviations from Purchasing Power Parity Under
  • Different Exchange Rate Regimes: Do They Revert and, If So, How?”, Journal of Banking and Finance, 30 (11), 3147-3169.
  • Serletis, A., Zimonopoulos, G., 1997, “Breaking trend functions in real exchange rates: evidence from seventeen OECD countries”, Journal of Macroeconomics, 19, 781–802.
  • Stiglitz, J. E., 2002, “Globalization and Its Discontents”, New York: Norton.
  • Sulku, S.N., 2010, “Econometric testing of purchasing power parity in less developed countries:fixed and flexible exchange rate regime experiences” Applied Economics, 42:20, 2617-2630.
  • Tastan, H., 2005, Do real exchange rates contain a unit root? Evidence from Turkish data, Applied Economics, 37, 2037–53.
  • Telatar, E. and Kazdaglı, H., 1998, “Re-examine the long-run purchasing power parity hypothesis for a high inflation country: the case of Turkey 1980–93”, Applied
  • Economics Letters, 5, 51–53. Xu, Z., 2003, “Purchasing power parity, price indices, and exchange rate forecasts”,
  • Journal of International Money and Finance, 22, 105–130. Yazgan, M. E., 2003, “The purchasing power parity hypothesis for a high inflation country: a re-examination of the case of Turkey”, Applied Economics Letters, 10, 143–147.
There are 54 citations in total.

Details

Primary Language English
Journal Section ARTICLES
Authors

Vedat Sarıkovanlık

Musa Gün

Publication Date August 27, 2015
Published in Issue Year 2015 Volume: 26 Issue: 78

Cite

APA Sarıkovanlık, V., & Gün, M. (2015). FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi, 26(78), 100-118.
AMA Sarıkovanlık V, Gün M. FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi. August 2015;26(78):100-118.
Chicago Sarıkovanlık, Vedat, and Musa Gün. “FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY”. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi 26, no. 78 (August 2015): 100-118.
EndNote Sarıkovanlık V, Gün M (August 1, 2015) FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi 26 78 100–118.
IEEE V. Sarıkovanlık and M. Gün, “FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY”, İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi, vol. 26, no. 78, pp. 100–118, 2015.
ISNAD Sarıkovanlık, Vedat - Gün, Musa. “FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY”. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi 26/78 (August 2015), 100-118.
JAMA Sarıkovanlık V, Gün M. FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi. 2015;26:100–118.
MLA Sarıkovanlık, Vedat and Musa Gün. “FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY”. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi, vol. 26, no. 78, 2015, pp. 100-18.
Vancouver Sarıkovanlık V, Gün M. FIXED VS. FLOATING: UNDER WHICH EXCHANGE RATE REGIMES PPP HOLDS-AN EMPIRICAL STUDY ON TURKISH ECONOMY. İstanbul Üniversitesi İşletme Fakültesi İşletme İktisadı Enstitüsü Yönetim Dergisi. 2015;26(78):100-18.
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