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Can overvaluation prelude to crisis and harm growth in Turkey

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  • Alper, Ahmet Murat
  • Civcir, İrfan

Abstract

This paper estimates the equilibrium real exchange rate of the Turkish lira to evaluate whether or not the overvaluation results in currency crisis and low growth rate over the period from the first quarter of 1987 to the fourth quarter of 2010. We follow the behavioral equilibrium exchange rate model, where the equilibrium real exchange rate depends on both the balance of payments approach and the Balassa–Samuelson hypothesis. The results indicate that although large and persistent overvaluation contributes to a crisis in Turkey, a relatively small overvaluation, contrary to both the Washington Consensus view and the Rodrik view, promotes the growth of Turkish economy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 34 (2012)
Issue (Month): 1 ()
Pages: 112-131

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Handle: RePEc:eee:jpolmo:v:34:y:2012:i:1:p:112-131

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Equilibrium real exchange rate; Behavioral equilibrium exchange rate; Misalignment; Turkey;

References

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Cited by:
  1. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, vol. 35(C), pages 614-621.
  2. Zhang, Zhibai & Chen, Langnan, 2013. "A New Assessment of the Chinese RMB Exchange Rate," MPRA Paper 49315, University Library of Munich, Germany.
  3. Zhibai, Zhang, 2012. "A Simple Model and Its Application in the Valuation of Five Asian Real Exchange Rates," MPRA Paper 40953, University Library of Munich, Germany.

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