– Preliminary Conference Draft –

In today’s competitive world the structure and the direction of external trade are determined by the exchange rate conducts. In other words nominal exchange rate affects competitive power in external trade. Policy makers can use PPP theory as a guide for the external competitive power of a country. Furthermore numerous empirical workings have been presented that misalignment exchange rate causes currency crises and macroeconomic disequilibrium. PPP provides an indicator for the misalignment. In the short run numerous studies has been rejected purchasing power parity for countries which have floating exchange rate system. Even though numerous studies have been presented strong evidences about real exchange rate tends to towards purchasing power parity. PPP theory has two versions: absolute and relative. Absolute purchasing power parity has a lot of weakness. So that relative version is commonly used instead of absolute version. The aim of this paper analyses validity of PPP in the long run in some of EU countries including Turkey. In this context, we use a panel unit root test in a TAR framework which based on Caner-Hansen (2001) methodology and bootstrap method to compute critical values for the null and alternative hypothesis. According to the findings relative PPP is valid some o