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Can overvaluation prelude to crisis and harm growth in Turkey

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  • Alper, Ahmet Murat
  • Civcir, İrfan

Abstract

This paper estimates the equilibrium real exchange rate of the Turkish lira to evaluate whether or not the overvaluation results in currency crisis and low growth rate over the period from the first quarter of 1987 to the fourth quarter of 2010. We follow the behavioral equilibrium exchange rate model, where the equilibrium real exchange rate depends on both the balance of payments approach and the Balassa–Samuelson hypothesis. The results indicate that although large and persistent overvaluation contributes to a crisis in Turkey, a relatively small overvaluation, contrary to both the Washington Consensus view and the Rodrik view, promotes the growth of Turkish economy.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jpolmo:v:34:y:2012:i:1:p:112-131
    DOI: 10.1016/j.jpolmod.2011.08.023
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    2. Zhibai Zhang & Xinyue Zou, 2013. "The Ratio Model and its Application: A Revisit," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(6), pages 1-4.
    3. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, vol. 35(C), pages 614-621.

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