Modeling the TRY/USD and TRY/EUR exchange rates.

Abstract

In this thesis we examine the validity of the Purchasing Power Parity (PPP) theory in the determination of the Turkish Lira’s exchange rates versus US Dollar and Euro. In our research we use quarterly data for the period 2000:1-2012:4.We formulate an empirical econometric model using cointegration and error correction models. Our analysis showed that in both cases there is a strong relationship between exchange rates and the PPP. These results provide us with more evidence on the validity of the PPP theory suggested by the economic theory. Our study using recent data has provided results compatible with the relevant economic literature