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How does the Exchange Rate Movement Affect Macroeconomic Performance? A VAR Analysis with Sign Restriction Approach– Evidence from Turkey

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  • Hakan M. Berument

    ()
    (Bilkent University)

  • Zulal S Denaux

    ()
    (Valdosta State University)

  • Yeliz Yalcin

    ()
    (Gazi University)

Abstract

In this paper, we assess the effect of exchange rate movement on macroeconomic performance by differentiating the source of exchange rate movement as either an expansionary monetary policy or a portfolio preference shock using quarterly data from Turkish economy for the period 1987:Q1 to 2008:Q3. Empirical evidence suggest that if the depreciation of the exchange rate stems from an expansionary monetary policy shock, then the effect of currency depreciation on the economy is expansionary. On the other hand, if currency depreciation comes from a portfolio choice allocation, then the effect of exchange rate deprecation on the economy is contractionary.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 295-305

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Handle: RePEc:ebl:ecbull:eb-11-00545

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Keywords: Exchange Rates; Monetary Policy; Vector Autoregression and Sign Restrictions.;

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  1. Uhlig, Harald, 1994. "What Macroeconomists Should Know about Unit Roots: A Bayesian Perspective," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 10(3-4), pages 645-671, August.
  2. M. Berument & Selahattin Togay & Afsin Sahin, 2011. "Identifying the Liquidity Effects of Monetary Policy Shocks for a Small Open Economy: Turkey," Open Economies Review, Springer, Springer, vol. 22(4), pages 649-667, September.
  3. Steven B. Kamin & John H. Rogers, 1997. "Output and the real exchange rate in developing countries: an application to Mexico," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 580, Board of Governors of the Federal Reserve System (U.S.).
  4. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 979, Cowles Foundation for Research in Economics, Yale University.
  5. Berument, Hakan, 2007. "Measuring monetary policy for a small open economy: Turkey," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(2), pages 411-430, June.
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