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The asymmetric impact of real exchange rate misalignment on growth dynamics in Turkey

Author

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  • Khalid, Waqar
  • Civcir, Irfan
  • Özdeşer, Hüseyin
  • Iqbal, Javed

Abstract

Earlier empirical studies examining the impact of exchange rate misalignment on economic growth were based on a symmetric approach, assuming that undervaluation and overvaluation affect economic growth symmetrically. However, recent empirical studies have shown that exchange rate misalignments asymmetrically affect economic growth. This study, therefore, examines the asymmetric effects of real exchange rate misalignments on economic growth in Turkey. The asymmetric effects of the non-linear autoregressive distributed lag model show that both overvaluation and undervaluation impede economic growth in Turkey. The study recommends that Turkey should maintain a market-based exchange rate policy to reduce currency misalignment. The study also recommends that the central bank of Turkey should intervene in the foreign exchange market for a short-term to mitigate the excessive distortions in exchange rates and avoid inefficiencies in resource allocation.

Suggested Citation

  • Khalid, Waqar & Civcir, Irfan & Özdeşer, Hüseyin & Iqbal, Javed, 2023. "The asymmetric impact of real exchange rate misalignment on growth dynamics in Turkey," Journal of Policy Modeling, Elsevier, vol. 45(6), pages 1184-1203.
    • Handle: RePEc:eee:jpolmo:v:45:y:2023:i:6:p:1184-1203
    DOI: 10.1016/j.jpolmod.2023.10.003
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    More about this item

    Keywords

    Currency misalignment; Asymmetry; Exchange rate; Economic growth; NARDL; Turkey;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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