Abstract
Purchasing Power Parity is an important approach to explain relationship between exchange rate and price level. In this case, if purchasing power parity is valid, change in price level between countries offsets equal change in nominal exchange rate. Hence, real exchange rate is mean reversion. For this, test for purchasing power parity, unit root properties of real exchange rate is examined. In this study, real exchange rate series investigates with standard and multiple break unit root tests for Turkey as a time series; with panel unit root test under crosssectionally dependence assumption for AB-27, AB-15, OECD and G-8 countries. Our findings show that purchasing power parity is not valid for Turkey but is valid for AB-27, AB-15, OECD and G-8 countries.
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