Purchasing power parity hypothesis among the main trading partners of Turkey

Abstract

In this study, we employ that panel unit root tests can be arranged in groups by cross-section dependence or independence, heterogeneous or homogenous unit roots to examine the validity of the purchasing power parity (PPP) hypothesis in Turkey, among trading partners. Using monthly observations of the period from January 2003 to December 2010 in a panel date framework of currencies of the eight largest-trading partner countries of Turkey, we find that panel unit root tests are not rejected the mean-reversion of real exchange rates. Thus, the empirical results give significant support for the purchasing power parity holds in Turkey among trading partners.