EMPIRICAL INVESTIGATION OF TURKISH LIRA REAL EFFECTIVE EXCHANGE RATES IN NONLINEAR NATURE

In this paper, the tendency properties of Turkish real effective exchange rate with an inaction band are examined in nonlinear nature. The general SETAR (3) model is used. This a convenient way presenting inactivity caused by transfer costs and other factors. modelling, stationarity defined globally which allow to unit root corridor regime but outers regimes must be mean reverting process. data used de-meaned de-trended form. For data, we execute both linearity tests. only test executed. According our empirical results, statistical evidence poor for validity PPP even null not rejected CPI based reel it 5% significance level PPI one. However, take into account possibility existence trend component, rates well characterized process property. While these findings support transaction hypothesis, they do strongly hypothesis.