Testing Purchasing Power Parity (PPP) to Examine Economic Openness of Turkey Economy: 1958-2018

This paper tests Purchasing Power Parity (PPP) with a variant of the Vector Error Correction Model (VECM) which conjectures that an association exists among Real Exchange Rate, Interest Rate, and Inflation rate in Turkey.The target goal of this examination is to research to what extent the chosen macroeconomic factors affect the Real Exchange Rate of Turkey by utilizing the Johansen long-run testing approach to deal with co-integration.The paper demonstrates spellbinding measurements.This paper tried the ADF Unit Root test for demonstrating whether board information is fixed or not.By testing the Johansen test for co-integration the paper demonstrates the relationship between Real Exchange Rate, Interest Rate, and Inflation Rate in Turkey.Vector Error Correction Model (VECM) is likewise evolved to test the short-run elements of the Real Exchange Rate work.Cumulative Sum (CUSUM) and Cumulative Sum of Square (CUSUMQ) have been utilized to test the strength of the model.The outcomes show that there is a short-run and long-run relationship among Real Exchange Rate, Inflation Rate, and Interest Rate.The outcomes indicated that the Inflation Rate negatively affects the Real Exchange Rate, however, Interest Rate has a Positive Impact.Also, the Inflation Rate has a free causal relationship with Real Exchange Rate, however, Interest Rate has a unidirectional relationship.This paper recommends the possibility to improve their Real Exchange Rate by diminishing the Inflation Rate and expanding the Interest Rate.