Question 7 (3 points): Purchasing Power Parity (Chapter 6)

The above scatter plot shows the annual exchange rate changes against the differential inflation rates between Turkey and the United States for the last 20 years. Based on the above scatter plot, does the purchasing power parity hold for the Turkish lira-U.S. dollar exchange rate? Explain your answer.

Turkey vs. U.S. y=-12.760 + 1.219x R2 = 0.668 Rate of Change of TL/$ (e, in (% Inf_Turkey - Inf_US (AInf, in %) Turkey vs. U.S. y=-12.760 + 1.219x R2 = 0.668 Rate of Change of TL/$ (e, in (% Inf_Turkey - Inf_US (AInf, in %)