Balassa Samuelson effect and Turkey example

The relationship between inflation rates and real exchange rates has recently been subject to a number of applied econometric studies especially on central and east European countries (CEECs). Under this framework Balassa-Samuleson Effect is one of the most popular approaches to constant appreciation of the real Exchange rate. Parallel to the studies that performed for CEECs, it can be foreseen that the relative productivity gap between Turkey and EU will result with relatively high inflation rates and an appreciation of the exchange rate in the future. The importance of determining whether the B-S effect worked for Turkey in the past has a critical value for predicting the consequences of the future process of nominal and real convergence to EU.