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EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE

Year 2021, Volume: 16 Issue: 1, 136 - 141, 29.06.2021
https://doi.org/10.48145/gopsbad.913638

Abstract

In this paper, the tendency properties of Turkish real effective exchange rate with an inaction band are examined in nonlinear nature. The general SETAR (3) model is used. This is a convenient way of presenting the inactivity band caused by the transfer costs and other factors. In this modelling, the stationarity is defined globally which is allow to unit root in the corridor regime but the outers regimes must be a mean reverting process. The data are used de-meaned and de-trended form. For de-meaned data, we execute both the linearity and the stationarity tests. For de-trended data, only the linearity test is executed. According to our empirical results, the statistical evidence is poor for the validity of PPP in even nonlinear nature. The null of unit root is not rejected for the CPI based reel effective exchange rate and it is rejected only 5% significance level for PPI based one. However, take into account possibility of the existence of trend component, Turkish real effective exchange rates are well characterized by nonlinear process with inactivity band and a tendency property. While these findings support the transaction costs hypothesis, they do not strongly support the validity of the PPP hypothesis.

References

  • Alba, J. D.; Park, D. (2005), "An empirical investigation of purchasing power parity (PPP) for Turkey", Journal of Policy Modeling, 27:8, 989-1000.
  • Arghyrou, M. G., Boinet, V. and Martin, C. (2006), "Non-linear and non-symmetric exchange-rate adjustment: Evidence from medium- and high-inflation countries", Journal of Economics and Finance, 30:1, 38-56.
  • Bai, J. (1997), "Estimating Multiple Breaks One at a Time. Econometric Theory", 13:3, 315-352.
  • Bai, J.; Perron, P. (1998), "Estimating and Testing Linear Models with Multiple Structural Changes", Econometrica, 66:1, 47-78.
  • Balke, N. S.; Fomby, T. B. (1997), "Threshold Cointegration. International Economic Review", 38:3, 627-645.
  • Bec, F.; Ben Salem, M. and Carrasco, M. (2004), "Tests for Unit-Root versus Threshold Specification with an Application to the Purchasing Power Parity Relationship" Journal of Business & Economic Statistics, 22:4, 382-395.
  • Beninga, S.; Protopapadakis, A. A. (1988), "The equilibrium pricing of exchange rates and assets when trade takes time", Journal of International Economics, 7, 129-149.
  • Blassa, B. (1964), "The Purchasing Power Parity Doctrine: A Reapraisal", Journal of Political Economy, 72, 584-596.
  • Caner, M.; Hansen, B. E. (2001), "Threshold Autoregression with a Unit Root", Econometrica, 69:6, 1555-1596.
  • Canzoneri, M. B.; Cumby, R. E. and Diba, B. (1996), "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries", NBER, Working Paper no: 5676.
  • Chan, K. S. (1993), "Consistency and Limiting Distribution of the Least Squares Estimator of a Threshold Autoregressive Model", The Annals of Statistics, 21:1, 520-533.
  • Chan, K. S.; Tong, H. (1990), "On Likelihood Ratio Tests for Threshold Autoregression", Journal of the Royal Statistical Society, Series B, 52:3, 469-476.
  • Chinn, M.; Johnston, L. (1996), "Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence From a Panel of 14 Countries", NBER, WP:5709.
  • Davies, R. B. (1987), "Hypothesis Testing when a Nuisance Parameter is Present Only Under the Alternatives", Biometrika, 74:1, 33-43.
  • Dumas, B. (1992), "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World", The Review of Financial Studies, 5:2, 153-180.
  • Güney, P. Ö.; Telatar, E.ve Hasanov, M. (2012), "Re-examining purchasing power parity for selected emerging markets and African countries", Applied Economics Letters, 19:2, 139-144.
  • Granger, C. W.; Teräsvirta, T. (1993), Modelling nonlinear economic relationships, Oxford University Press.
  • Hansen, B. E. (1996), "Inference when a nuisance parameter is not identified under the null hypothesis", Econometrica, 64:2, 413-430.
  • Hansen, B. E. (1997), "Inference in TAR models", Studies in Nonlinear Dynamics and Econometrics, 1:2, 1-14.
  • Hansen, B. E. (1999), "Testing for Linearity", Journal of Economic Surveys, 13:5, 551-576.
  • Heckscher, E. F. (1916), "Vaxelkursens Grundval vid Pappersmyntfot", Ekonomisk Tidskrift, 18, 309-312.
  • Hooper, P.; Morton, J. (1982), "Fluctuations in the dollar: A model of nominal and real exchange rate determination", Journal of International Money and Finance, 1, 39-56.
  • Kalyoncu, H., Kula, F. and Aslan, A. (2010), "The validity of purchasing power parity hypothesis in middle east and northern africa countries", Romanian Journal of Economic Forecasting, 4, 125-131.
  • Kapetanios, G.; Shin, Y. (2006), "Unit root tests in three-regime SETAR models", The Econometrics Journal, 9:2, 252-278.
  • Kapetanios, G., Shin, Y. and Snell, A. (2003), "Testing for a unit root in the nonlinear STAR framework", Journal of Econometrics, 112:2, 359-379.
  • Keenan, D. M. (1985), "A Tukey Nonadditivity-Type Test for Time Series Nonlinearity", Biometrika, 72:1, 39-44.
  • Kılıç, R. (2011), "Testing for a unit root in a stationary ESTAR process", Econometric Reviews, 30:3, 274-302.
  • Kilian, L.; Taylor, M. P. (2003), "Why is it so difficult to beat the random walk forecast of exchange rates?", Journal of International Economics, 60:1, 85-107.
  • Krugman, P. R. (1991), "Target Zones and Exchange Rate Dynamics", The Quarterly Journal of Economics, 106:3, 669-682.
  • Kruse, R. (2011), "A new unit root test against ESTAR based on a class of modified statistics", Statistical Papers, 52, 71-85.
  • Kula, F., Aslan, A. and Feridun, M. (2011), "Purchasing Power Parity In Mena Revisited: Empirical Evidence in the Presence of Endogenously Determined Break Points", Economic Research-Ekonomska Istraživanja, 24:1, 1-12.
  • 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, 2:3, 241-245.
  • Morton, J.; Hooper, P. (1982), "Fluctuations in the dollar: A model of nominal and real exchange rate determination", Journal of International Money and Finance, 1, 39-56.
  • Obstfeld, M. (1993), "Model Trending Real Exchange Rates", Center for International and Development Economics Research, Working Paper No:C93-011.
  • Obstfeld, M.; Rogoff, K. (1994), "The Intertemporal Approach to the Current Account", NBER, Working Paper no: 4893.
  • Obstfeld, M.; Taylor, A. M. (1997), "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited", Journal of the Japanese and International Economies, 11:4, 441-479.
  • Sarno, L. (2000), "Real exchange rate behaviour in high inflation countries: empirical evidence from Turkey, 1980-1997", Applied Economics Letters, 7:5, 285-291.
  • Shumway, R. H.; Stoffer, D. S. (2016), Time Series Analysis and Its Applications (Fourth Edition b.). Pittsburgh: Springer.
  • Sollis, R. (2004), "Asymmetric Adjustment and Smooth Transitions: A Combination of Some Unit Root Tests", Journal of Time Series Analysis, 25, 409-417.
  • Şener, S., Yılancı, V. and Canpolat, E. (2015), "Satın alma gücü paritesi ve varyasyonlarının Türkiye için sınanması", Uluslararası Yönetim İktisat ve İşletme Dergisi, 11:25, 53-63.
  • Taylor, M. P. (2004), "Is Official Exchange Rate Intervention Effective?", Economica, 71:281, 1-11.
  • Taylor, M. P., Peel, D. A. ve Sarno, L. (2001), "Nonlinear Mean‐Reversion in Real Exchange Rates: Toward a Solution To the Purchasing Power Parity Puzzles", International Economic Review, 11, 1015-1042.
  • Tsay, R. S. (1986), "Nonlinearity tests for time series", Biometrika, 73:2, 461-466.
  • Williams, J. C.; Wright, B. D. (1991), Storage and commodity markets, UK: Cambridge University Press.
  • Yıldırım, D. (2017), "Empirical investigation of purchasing power parity for Turkey:Evidence from recent nonlinear unit root tests", Central Bank Review, 17, 39-45.
  • Yıldırım, S.; Yıldırım, Z. (2012), "Reel efektif döviz kuru üzerinde kırılmalı birim kök testleri ile Türkiye için satın alma gücü paritesi hipotezinin geçerliliğinin sınanması", Marmara Üniversitesi İ.B.B Dergisi, 33:2, 221-238.

TÜRK LİRASI REEL EFEKTİF DÖVIZ KURLARININ DOĞRUSAL OLMAYAN YAPIDA AMPİRİK İNCELEMESİ

Year 2021, Volume: 16 Issue: 1, 136 - 141, 29.06.2021
https://doi.org/10.48145/gopsbad.913638

Abstract

Bu çalışmada, Türk lirası reel efektif döviz kurlarının doğrusal olmayan nitelikteki eğilim özellikleri genel SETAR (3) model kullanılarak incelenmiştir. SETAR (3) model, transfer maliyetleri ve diğer faktörlerin neden olduğu hareketsizlik bandını göstermenin uygun bir yoludur. Bu modellemede, durağanlık global olarak tanımlanmaktadır. Global durağan süreçte koridor rejim birim kök sürecine sahip olabilirken, dış rejimler ortalamaya yönelen bir sürece sahip olması gerekmektedir. Analiz, ortalamadan ve eğilimden arındırılmış veriler için ayrı ayrı gerçekleştirilmiştir. Ortalamadan arındırılmış veriler için, hem doğrusallık hem de durağanlık testleri uygulanmıştır. Eğilimden arındırılmış veriler için ise yalnızca doğrusallık testi gerçekleştirilmiştir. Analiz sonuçlarına göre, CPI bazlı reel efektif döviz kuru için birim kök boş hipotezi reddedilememişken ve ÜFE bazlı olan için sadece% 5 anlamlılık seviyesinde ret edilebilmiştir. Buna göre doğrusal olmayan yapıda bile PPP'nin geçerliliği için istatistiksel kanıtlar zayıftır. Bununla birlikte trend bileşeninin var olma olasılığını hesaba katıldığında, Türk lirası reel efektif döviz kurları bir hareketsizlik bandının çevresinde yakınsama özelliğine sahip olduğuna yönelik güçlü istatistikler kanıtlar bulunmaktadır. Bu sonuçlar işlem maliyeti hipotezini desteklemekte iken satın alma gücü paritesi hipotezini güçlü bir şekilde desteklememektedir

References

  • Alba, J. D.; Park, D. (2005), "An empirical investigation of purchasing power parity (PPP) for Turkey", Journal of Policy Modeling, 27:8, 989-1000.
  • Arghyrou, M. G., Boinet, V. and Martin, C. (2006), "Non-linear and non-symmetric exchange-rate adjustment: Evidence from medium- and high-inflation countries", Journal of Economics and Finance, 30:1, 38-56.
  • Bai, J. (1997), "Estimating Multiple Breaks One at a Time. Econometric Theory", 13:3, 315-352.
  • Bai, J.; Perron, P. (1998), "Estimating and Testing Linear Models with Multiple Structural Changes", Econometrica, 66:1, 47-78.
  • Balke, N. S.; Fomby, T. B. (1997), "Threshold Cointegration. International Economic Review", 38:3, 627-645.
  • Bec, F.; Ben Salem, M. and Carrasco, M. (2004), "Tests for Unit-Root versus Threshold Specification with an Application to the Purchasing Power Parity Relationship" Journal of Business & Economic Statistics, 22:4, 382-395.
  • Beninga, S.; Protopapadakis, A. A. (1988), "The equilibrium pricing of exchange rates and assets when trade takes time", Journal of International Economics, 7, 129-149.
  • Blassa, B. (1964), "The Purchasing Power Parity Doctrine: A Reapraisal", Journal of Political Economy, 72, 584-596.
  • Caner, M.; Hansen, B. E. (2001), "Threshold Autoregression with a Unit Root", Econometrica, 69:6, 1555-1596.
  • Canzoneri, M. B.; Cumby, R. E. and Diba, B. (1996), "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries", NBER, Working Paper no: 5676.
  • Chan, K. S. (1993), "Consistency and Limiting Distribution of the Least Squares Estimator of a Threshold Autoregressive Model", The Annals of Statistics, 21:1, 520-533.
  • Chan, K. S.; Tong, H. (1990), "On Likelihood Ratio Tests for Threshold Autoregression", Journal of the Royal Statistical Society, Series B, 52:3, 469-476.
  • Chinn, M.; Johnston, L. (1996), "Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence From a Panel of 14 Countries", NBER, WP:5709.
  • Davies, R. B. (1987), "Hypothesis Testing when a Nuisance Parameter is Present Only Under the Alternatives", Biometrika, 74:1, 33-43.
  • Dumas, B. (1992), "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World", The Review of Financial Studies, 5:2, 153-180.
  • Güney, P. Ö.; Telatar, E.ve Hasanov, M. (2012), "Re-examining purchasing power parity for selected emerging markets and African countries", Applied Economics Letters, 19:2, 139-144.
  • Granger, C. W.; Teräsvirta, T. (1993), Modelling nonlinear economic relationships, Oxford University Press.
  • Hansen, B. E. (1996), "Inference when a nuisance parameter is not identified under the null hypothesis", Econometrica, 64:2, 413-430.
  • Hansen, B. E. (1997), "Inference in TAR models", Studies in Nonlinear Dynamics and Econometrics, 1:2, 1-14.
  • Hansen, B. E. (1999), "Testing for Linearity", Journal of Economic Surveys, 13:5, 551-576.
  • Heckscher, E. F. (1916), "Vaxelkursens Grundval vid Pappersmyntfot", Ekonomisk Tidskrift, 18, 309-312.
  • Hooper, P.; Morton, J. (1982), "Fluctuations in the dollar: A model of nominal and real exchange rate determination", Journal of International Money and Finance, 1, 39-56.
  • Kalyoncu, H., Kula, F. and Aslan, A. (2010), "The validity of purchasing power parity hypothesis in middle east and northern africa countries", Romanian Journal of Economic Forecasting, 4, 125-131.
  • Kapetanios, G.; Shin, Y. (2006), "Unit root tests in three-regime SETAR models", The Econometrics Journal, 9:2, 252-278.
  • Kapetanios, G., Shin, Y. and Snell, A. (2003), "Testing for a unit root in the nonlinear STAR framework", Journal of Econometrics, 112:2, 359-379.
  • Keenan, D. M. (1985), "A Tukey Nonadditivity-Type Test for Time Series Nonlinearity", Biometrika, 72:1, 39-44.
  • Kılıç, R. (2011), "Testing for a unit root in a stationary ESTAR process", Econometric Reviews, 30:3, 274-302.
  • Kilian, L.; Taylor, M. P. (2003), "Why is it so difficult to beat the random walk forecast of exchange rates?", Journal of International Economics, 60:1, 85-107.
  • Krugman, P. R. (1991), "Target Zones and Exchange Rate Dynamics", The Quarterly Journal of Economics, 106:3, 669-682.
  • Kruse, R. (2011), "A new unit root test against ESTAR based on a class of modified statistics", Statistical Papers, 52, 71-85.
  • Kula, F., Aslan, A. and Feridun, M. (2011), "Purchasing Power Parity In Mena Revisited: Empirical Evidence in the Presence of Endogenously Determined Break Points", Economic Research-Ekonomska Istraživanja, 24:1, 1-12.
  • 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, 2:3, 241-245.
  • Morton, J.; Hooper, P. (1982), "Fluctuations in the dollar: A model of nominal and real exchange rate determination", Journal of International Money and Finance, 1, 39-56.
  • Obstfeld, M. (1993), "Model Trending Real Exchange Rates", Center for International and Development Economics Research, Working Paper No:C93-011.
  • Obstfeld, M.; Rogoff, K. (1994), "The Intertemporal Approach to the Current Account", NBER, Working Paper no: 4893.
  • Obstfeld, M.; Taylor, A. M. (1997), "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited", Journal of the Japanese and International Economies, 11:4, 441-479.
  • Sarno, L. (2000), "Real exchange rate behaviour in high inflation countries: empirical evidence from Turkey, 1980-1997", Applied Economics Letters, 7:5, 285-291.
  • Shumway, R. H.; Stoffer, D. S. (2016), Time Series Analysis and Its Applications (Fourth Edition b.). Pittsburgh: Springer.
  • Sollis, R. (2004), "Asymmetric Adjustment and Smooth Transitions: A Combination of Some Unit Root Tests", Journal of Time Series Analysis, 25, 409-417.
  • Şener, S., Yılancı, V. and Canpolat, E. (2015), "Satın alma gücü paritesi ve varyasyonlarının Türkiye için sınanması", Uluslararası Yönetim İktisat ve İşletme Dergisi, 11:25, 53-63.
  • Taylor, M. P. (2004), "Is Official Exchange Rate Intervention Effective?", Economica, 71:281, 1-11.
  • Taylor, M. P., Peel, D. A. ve Sarno, L. (2001), "Nonlinear Mean‐Reversion in Real Exchange Rates: Toward a Solution To the Purchasing Power Parity Puzzles", International Economic Review, 11, 1015-1042.
  • Tsay, R. S. (1986), "Nonlinearity tests for time series", Biometrika, 73:2, 461-466.
  • Williams, J. C.; Wright, B. D. (1991), Storage and commodity markets, UK: Cambridge University Press.
  • Yıldırım, D. (2017), "Empirical investigation of purchasing power parity for Turkey:Evidence from recent nonlinear unit root tests", Central Bank Review, 17, 39-45.
  • Yıldırım, S.; Yıldırım, Z. (2012), "Reel efektif döviz kuru üzerinde kırılmalı birim kök testleri ile Türkiye için satın alma gücü paritesi hipotezinin geçerliliğinin sınanması", Marmara Üniversitesi İ.B.B Dergisi, 33:2, 221-238.
There are 46 citations in total.

Details

Primary Language English
Journal Section Research Article
Authors

Mustafa Nal 0000-0001-6190-6437

Publication Date June 29, 2021
Submission Date April 12, 2021
Acceptance Date May 8, 2021
Published in Issue Year 2021 Volume: 16 Issue: 1

Cite

APA Nal, M. (2021). EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE. Sosyal Bilimler Araştırmaları Dergisi, 16(1), 136-141. https://doi.org/10.48145/gopsbad.913638
AMA Nal M. EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE. JSSR. June 2021;16(1):136-141. doi:10.48145/gopsbad.913638
Chicago Nal, Mustafa. “EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE”. Sosyal Bilimler Araştırmaları Dergisi 16, no. 1 (June 2021): 136-41. https://doi.org/10.48145/gopsbad.913638.
EndNote Nal M (June 1, 2021) EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE. Sosyal Bilimler Araştırmaları Dergisi 16 1 136–141.
IEEE M. Nal, “EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE”, JSSR, vol. 16, no. 1, pp. 136–141, 2021, doi: 10.48145/gopsbad.913638.
ISNAD Nal, Mustafa. “EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE”. Sosyal Bilimler Araştırmaları Dergisi 16/1 (June 2021), 136-141. https://doi.org/10.48145/gopsbad.913638.
JAMA Nal M. EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE. JSSR. 2021;16:136–141.
MLA Nal, Mustafa. “EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE”. Sosyal Bilimler Araştırmaları Dergisi, vol. 16, no. 1, 2021, pp. 136-41, doi:10.48145/gopsbad.913638.
Vancouver Nal M. EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE. JSSR. 2021;16(1):136-41.


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