Abstract
Turkey as an emerging country and one of the fastest growing economies during the last decade has been implementing the trade-oriented growth model since 1980. The exchange rate policy in that respect is at the center of trade and monetary policies. Given the importance of constructing fundamental equilibrium exchange rates, the long-run PPP hypothesis has been empirically investigated during the last decade. We re-examine the purchasing power parity (PPP) hypothesis for Turkey with her ten major trading partners and find out that when the structural shifts are taken into account, there is a strong evidence in favor of the validity of PPP hypothesis. An interesting finding also is that the PPP hypothesis seems to hold for the European Union countries.
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