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Information content of exchange rate volatility: Turkish experience

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  • Levent, Korap

Abstract

This study constructs an empirical model of the volatility of the TL/US$ exchange rate for the Turkish economy during the post-2001 crisis period ending on August 2006. Employing the Exponential GARCH (EGARCH) estimation methodology of econometrics, we find that the volatility of a given shock to the exchange rate is highly persistent and the successive forecasts of the conditional variance converge to the steady state quite slowly. In addition, the conditional variance of the exchange rate reacts differently to a given negative shock than to a positive shock with equal magnitude. The plot of the News Impact Curve indicates that a foreign investor would face a higher uncertainty when there is an unanticipated increase in the exchange rate when compared to an unanticipated decrease.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19598.

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Date of creation: Apr 2007
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Publication status: Published in International Business and Economics Research Journal 2.6(2007): pp. 9-14
Handle: RePEc:pra:mprapa:19598

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Keywords: Exchange Rate Volatility ; News Impact ; Turkish Economy;

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References

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  1. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  2. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoglu, 2005. "The Effectiveness of Foreign Exchange Interventions for the Turkish Economy : A Post-Crisis Period Analysis," Working Papers 0506, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  3. Ana Maria Herrera & Pinar Ozbay, 2005. "A Dynamic Model of Central Bank Intervention," Working Papers 0501, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  4. Domac, Ilker & Mendoza, Alfonso, 2004. "Is there room for foreign exchange interventions under an inflation targeting framework ? Evidence from Mexico and Turkey," Policy Research Working Paper Series 3288, The World Bank.
  5. Irfan Civcir, 2003. "Before the Fall, Was the Turkish Lira Overvalued?," Eastern European Economics, M.E. Sharpe, Inc., vol. 41(2), pages 69-99, March.
  6. Paul Cashin & C. John McDermott, 2003. "An Unbiased Appraisal of Purchasing Power Parity," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 1.
  7. Ozge Akinci & Olcay Yucel Culha & Umit Ozlale & Gulbin Sahinbeyoglu, 2005. "Causes and Effectiveness of Foreign Exchange Interventions for the Turkish Economy," Working Papers 0505, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  8. Oya Pınar Ardıc & Faruk Selcuk, 2006. "The dynamics of a newly floating exchange rate: the Turkish case," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 931-941.
  9. Levent Korap, 2006. "An Analysis of Central Bank Interventions on Forex Market For The Post-Crisis Period," Working Papers 2006/4, Turkish Economic Association.
  10. Rudi Dornbusch, 2002. "A Primer on Emerging-Market Crises," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 743-754 National Bureau of Economic Research, Inc.
  11. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
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Cited by:
  1. Levent, Korap, 2008. "Asymmetric information content of the YTL/US$ exchange rate return: new evidence from the post-crisis data using arma-egarch-m modeling," MPRA Paper 19631, University Library of Munich, Germany.
  2. Simatele, Munacinga C H, 2004. "Financial sector reforms and monetary policy reforms in Zambia," MPRA Paper 21575, University Library of Munich, Germany.

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