Time Series Analysis about the Relationship between Foreign Trade and Exchange Rate in Turkish Economy

In this study, the relationship between the foreign trade data and the exchange rate is tested using the monthly data for the period of 1992:01-2014:01 in Turkish Economy. The devaluation of local currency is expected to increase export while decreasing import rates, thus it will close the foreign trade deficit, theoretically. However, this effect is observed in varying degrees in the on both short and long terms. One of the most fundamental problems of the Turkish Economy is the foreign trade deficit, beside the Turkish Lira is a quite frequently fluctuating currency. The relationship between the foreign trade data and the exchange rate is an important topic to examine when the dependence of export to import is especially considered. In this study, the long-term relation between these two main variables and their causality are examined as using the time series analysis. Therefore, the tested hypothesis will be „there is a long term relationship between the exchange rate and the foreign trade in Turkish Economy“. It is was empirically observed that this hypothesis is correct as a result of the tests. It is also observed that there is Granger causality from the exchange rate to the exports, imports and net foreign trade in addition to the fact that the long term relationship exists between the foreign trade and the rate of exchange.