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An Empirical Examination of Asymmetry on Exchange Rate Spread Using the Quantile Autoregressive Distributed Lag (QARDL) Model

Author

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  • Goktug Sahin

    (Department of Economics, Faculty of Economics and Administrative Sciences, Ankara Haci Bayram Veli University, 06500 Ankara, Türkiye)

  • Afsin Sahin

    (Department of Finance and Banking, School of Banking and Insurance, Ankara Haci Bayram Veli University, 06500 Ankara, Türkiye)

Abstract

In economics, some transactions are conducted by the bid rate, and some are conducted by the ask rate. The spread between these two rates creates an essential cost and inefficiency for the economy. Taking these problems into account, the purpose of this study was to analyze the effects of macroeconomic and financial variables on the USD/TL exchange rate bid–ask spread for Türkiye using daily data spanning the period between 2 January 1990 and 2 August 2022. The quantile autoregressive distributed lag (QARDL) model was drawn upon to capture possible asymmetry in parameters and distinguish the results between different locations. The results obtained in this study may differ from the linear model and may change by the location, implying that the spread is reduced by the volume while it is increased by volatility and interest rates in the long run for some quantiles. Stock prices stir it in the long run, yet they decline it in the short run, indicating an asymmetry. Following the examples from the literature that analyzed the relationship via linear models, this paper employed a QARDL model for exploring location and sign asymmetry in the results for some quantiles. As the results indicate, efficiency in the bid–ask exchange rate spread can be controlled; therefore, it is our suggestion for policymakers to consider the extreme levels and asymmetry of the bid–ask exchange rate spread while evaluating its penetrating macro-financial variates.

Suggested Citation

  • Goktug Sahin & Afsin Sahin, 2023. "An Empirical Examination of Asymmetry on Exchange Rate Spread Using the Quantile Autoregressive Distributed Lag (QARDL) Model," JRFM, MDPI, vol. 16(1), pages 1-25, January.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:1:p:38-:d:1027286
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    References listed on IDEAS

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