Cheers and the deviations from the PPP and UIP in a financially open economy: The Turkish evidence

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Tezin Türü: Yüksek Lisans

Tezin Yürütüldüğü Kurum: Orta Doğu Teknik Üniversitesi, İktisadi ve İdari Bilimler Fakültesi, İktisat Bölümü, Türkiye

Tezin Onay Tarihi: 2001

Tezin Dili: İngilizce

Öğrenci: AYSUN GÖKCAN

Danışman: ERDAL ÖZMEN

Özet:

ABSTRACT CHEERS AND THE DEVIATIONS FROM THE PPP AND UIP IN A FINANCIALLY OPEN ECONOMY: THE TURKISH EVIDENCE Gökcan, Aysun M.S., Department of Economics, Supervisor: Assoc. Prof. Dr Erdal özmen August 2001, 47 pages This paper investigates the empirical validity of the capital enhanced equilibrium exchange rates (CHEERS) model for the Turkish data using Johansen cointegration procedure. The results of the Johansen cointegration analyses for the variable system containing Turkish and US inflation rates, interest rates, and exchange rate suggest the existence of two stationary relationships explaining the long run evolution of Turkish interest rates and inflation rates, respectively. The results of the structural model obtained by data-acceptable over-identifying restrictions over the cointegration vectors suggest the non-rejection of the hypothesis that the first vector contains UIP and the second vector contains PPP with proportionality and symmetry conditions. Consistent with the CHEERS approach, each of the international parity hypotheses is strongly rejected when formulated independently. This is a theory-consistent result for a financially open economy for which equilibrium conditions of asset and commodity markets may not be independent of each other. Keywords: PPP, UIP, CHEERS, Exchange Rates, Cointegration, Turkey