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Misaligned? Overvalued?. The Untold Story of the Turkish Lira

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  • Deniz Atasoy
  • Sweta C. Saxena

Abstract

Scholars agree that overvalued exchange rates result in currency crises. This paper estimates the equilibrium real exchange rate for Turkey, finding that the lira was indeed overvalued before the crises in 1994 and 2001. However, the actual real exchange rate is at present close to the equilibrium level, exposing the myth propagated by Turkish exporters that the lira's overvaluation is responsible for Turkey's uncompetitive exports. The paper also highlights the role for fiscal adjustment in macroeconomic stability.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 42 (2006)
Issue (Month): 3 (May)
Pages: 29-45

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Handle: RePEc:mes:emfitr:v:42:y:2006:i:3:p:29-45

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

Related research

Keywords: equilibrium real exchange rate; misalignment; overvaluation; Turkish lira;

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References

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  1. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
  2. Asikoglu, Yaman & Uctum, Merih, 1992. "A critical evaluation of exchange rate policy in Turkey," World Development, Elsevier, vol. 20(10), pages 1501-1514, October.
  3. Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614 Elsevier.
  4. U. Ozlale & E. Yeldan, 2004. "Measuring exchange rate misalignment in Turkey," Applied Economics, Taylor & Francis Journals, vol. 36(16), pages 1839-1849.
  5. Agenor, Pierre-Richard & McDermott, C. John & Ucer, Murat, 1997. "Fiscal imbalances, capital inflows, and the real exchange rate: The case of Turkey," European Economic Review, Elsevier, vol. 41(3-5), pages 819-825, April.
  6. Alper, C. Emre & Saglam, Ismail, 1999. "The Equilibrium Real Exchange Rate: Evidence from Turkey," MPRA Paper 1924, University Library of Munich, Germany.
  7. E. Murat Ucer & C. John McDermott & Pierre-Richard Agénor, 1997. "Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate," IMF Working Papers 97/1, International Monetary Fund.
  8. Giyas Gökkent & Carlos Moslares & Rafael Amiel-Saenz, 2003. "Failure of an Exchange-Rate-Based Stabilization Plan in Turkey," Eastern European Economics, M.E. Sharpe, Inc., vol. 41(1), pages 35-67, January.
  9. Susana Garcia Cervero & J. Humberto Lopez & Enrique Alberola Ila & Angel J. Ubide, 1999. "Global Equilibrium Exchange Rates," IMF Working Papers 99/175, International Monetary Fund.
  10. K. Doroodian & Chulho Jung & Ahmet Yucel, 2002. "Estimating the equilibrium real exchange rate: the case of Turkey," Applied Economics, Taylor & Francis Journals, vol. 34(14), pages 1807-1812.
  11. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
  12. Erol, Turan & Van Wijnbergen, Sweder, 1997. "Real exchange rate targeting and inflation in Turkey: An empirical analysis with policy credibility," World Development, Elsevier, vol. 25(10), pages 1717-1730, October.
  13. Enrique Alberola & Susana G. Cervero & Humberto Lopez & Angel Ubide, 2000. "Global Equilibrium Exchange Rates: Euro, Dollar, "Ins," "Outs," and Other Major Currencies in a Panel Cointegration Framework," Econometric Society World Congress 2000 Contributed Papers 0051, Econometric Society.
  14. Ahmet N. Kipici, 1996. "Terms of Trade and Economic Fluctuations," Discussion Papers 9615, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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Citations

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Cited by:
  1. Dağdeviren, Sengül & Ogus Binatli, Ayla & Sohrabji, Niloufer, 2011. "Misalignment under different exchange rate regimes: the case of Turkey," MPRA Paper 46774, University Library of Munich, Germany.
  2. Mete Feridun, 2009. "Determinants of Exchange Market Pressure in Turkey: An Econometric Investigation," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 45(2), pages 65-81, March.
  3. Égert, Balázs, 2005. "Equilibrium exchange rates in Southeastern Europe, Russia, Ukraine and Turkey: Healthy or (Dutch) diseased?," BOFIT Discussion Papers 3/2005, Bank of Finland, Institute for Economies in Transition.
  4. Alper, Ahmet Murat & Civcir, İrfan, 2012. "Can overvaluation prelude to crisis and harm growth in Turkey," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 112-131.

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