Abstract

Real exchange rates, which are calculated by taking into account the inflation differences among countries, are also indicative of the country's competitiveness in foreign trade. Continuous fluctuation and shocks in the exchange rates cause a wide variety of structural breaks in the number, duration and form unknown in the series. Therefore, the calculation of the real exchange rate is an important factor in terms of economic stability. In this study, the first approach to determining the exchange rate of equilibrium, the purchasing power parity approach will be taken into consideration. The aim of the study is to test the long-term validity of purchasing power parity in Turkey using Fourier unit root tests. Continuous fluctuations and shocks in exchange rates lead to a wide range of structural breaks in unknown numbers, duration and form. For this purpose, real exchange rate stability was analyzed between 2003M1:2018M12 for Turkey with the Fourier stationarity test developed by Becker, Enders and Lee in 2006. According to the results of FKPSS, the real exchange rate series is found to be stable in a non-linear structure. As the real exchange rate in the long term will show a tendency to return to the average, it is concluded that purchasing power parity is valid.