TESTING THE VALIDITY OF EXCHANGE RATE DETERMINATION APPROACHES FOR TURKEY

Authors : Mehmet Çağrı GÖZEN, Selçuk KOÇ, Tezcan ABASIZ

Pages : 111-128

Doi:10.14780/muiibd.281331

View : 17 | Download : 13

Publication Date : 2016-12-25

Article Type : Research Paper

Abstract :This paper investigates the two of the exchange rate determination approaches for Turkey. Efficient Market Hypothesis insert ignore into journalissuearticles values(EMH); in weak form is tested by using overnight, weekly, monthly, quarterly and yearly forward exchange rates and spot exchange rates for Turkish Lira/US Dollar and Turkish Lira/ Euro. Weekly data is used to test EMH for 2002:11-2015:06 period. Other approach empirically tested in this paper is Purchasing Power Parity insert ignore into journalissuearticles values(PPP); Hypothesis for Turkey. Whether or not this approach is valid is determined with monthly data covering the 2002:11-2015:03 period. In this study, LP and LM unit root tests with two structural breaks is applied as method in addition to KPSS and Augmented Dickey-Fuller unit root tests. Our findings don’t support the evidence that PPP hypothesis is valid but support that market efficiency in weak form is valid.
Keywords : Exchange Rate Determination, Purchasing Power Parity, Efficient Market Hypothesis, ADF Unit Root Test, LM Unit Root Test