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How Important Are Nominal Shocks For Real Exchange Rate Fluctuations? Evidence From Inflation Targeting Emerging Market Economies

Author

Listed:
  • M. Fatih Ekinci

    (Central Bank of Turkey)

  • Fatma Pınar Erdem

    (Central Bank of Turkey)

  • Zübeyir Kılınç

    (Central Bank of Turkey)

Abstract

This study compares the importance of the nominal shocks in explaining the real exchange rate fluctuations before and after the adoption of inflation targeting regime in emerging market economies. We follow the structural VAR methodology proposed by Clarida and Gali (1994) to identify the macroeconomic shocks that determine fluctuations in relative output growth, relative inflation and the real exchange rate. The structural decomposition shows that real shocks account for most of the variation in the real exchange rate. Furthermore, findings indicate that the explanatory power of the nominal shocks in the real exchange rate fluctuations have increased after the implementation of the inflation targeting regime.

Suggested Citation

  • M. Fatih Ekinci & Fatma Pınar Erdem & Zübeyir Kılınç, 2015. "How Important Are Nominal Shocks For Real Exchange Rate Fluctuations? Evidence From Inflation Targeting Emerging Market Economies," EY International Congress on Economics II (EYC2015), November 5-6, 2015, Ankara, Turkey 286, Ekonomik Yaklasim Association.
    • Handle: RePEc:eyd:cp2015:286
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    More about this item

    Keywords

    Okun Kanunu; İşsizlik; Büyüme; Dinamik Panel Veri;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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