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Determinants of Turkish real effective exchange rates

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  • Tunaer Vural, Burçak Müge

Abstract

Widening current account deficits went hand in hand with considerable volatility, and financial fragility for last three decades. Within these circumstances, Turkish Lira has been exposed to huge oscillations from time to time. These kind of substantial ups and downs raise the questions on the persistency of equilibrium exchange rates for TL. This paper aims to assess the long run equilibrium path for Turkish Lira and its fundamental determinants. Empirical investigation suggests that the main fundamental determinants of Turkish real effective exchange rates are the real GDP per capita relative to trading partners, oil prices, fiscal expenditures and international openness. Despite expectations, net foreign assets do not exhibit a significant long run relationship with real exchange rates in Turkey. Persistent rise in productivity measure (GDP per capita relative to major trading partners) is associated with the appreciation pressure on equilibrium exchange rates.

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  • Tunaer Vural, Burçak Müge, 2019. "Determinants of Turkish real effective exchange rates," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 151-158.
    • Handle: RePEc:eee:quaeco:v:73:y:2019:i:c:p:151-158
    DOI: 10.1016/j.qref.2018.06.004
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    1. Muhammad Umar Draz & Fayyaz Ahmad & Bhumika Gupta & Waqas Amin, 2019. "Macroeconomic fundamentals and exchange rates in South Asian economies : evidence from pooled and panel estimations," Post-Print hal-02559707, HAL.

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    More about this item

    Keywords

    PPP; Exchange rate determination; B-S effect;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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