Misalignment under different exchange rate regimes: the case of Turkey
AbstractThe paper examines misalignment of the Turkish lira between 1998 to 2008. Misalignment, specifically overvaluation has been linked to fixed exchange rate regimes. By studying the case of Turkey during this period which covers both a fixed and floating exchange rate regime, we contribute to the literature on the relation between misalignment and exchange rate regimes. We first estimate the equilibrium real exchange rate for Turkey, then compute misalignment and finally test for structural breaks in the misalignment series. Through our tests we find three structural regimes which we call the pre-crisis period, the transition period and the post-crisis period. We find considerable overvaluation in first regime, which is when Turkey had a fixed exchange rate regime. This was not the case for the periods that had floating exchange rates. Thus, we conclude that overvalued currencies that have been linked to financial crises are a more serious concern for fixed exchange rate regimes.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 46774.
Date of creation: 07 Jul 2011
Date of revision:
Publication status: Published in Economie Internationale 130.2012(2012): pp. 81-98
Cointegration; equilibrium real exchange rate; misalignment; structural breaks; Turkey;
Other versions of this item:
- Sengül Dagdeviren & Ayla Ogu? Binatli & Niloufer Sohrabji, 2012. "Misalignment Under Different Exchange Rate Regimes: the Case of Turkey," Economie Internationale, CEPII research center, issue 130, pages 81-98.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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