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Measuring exchange rate misalignment in Turkey

Author

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  • U. Ozlale
  • E. Yeldan

Abstract

Turkey has embarked an extensive dis-inflation and stabilization program in December 1999. The programme exclusively relied on a nominally pegged (anchored) exchange rate system for dis-inflation and on fiscal austerity. In February 2001, however, Turkey experienced a severe financial crisis which necessiated the dismantling of the exchange rate anchor and a switch to a regime of free float. This article proposes a new methodology to measure exchange rate misalignment for Turkey over the period January 1992 to December 2001. In a single equation framework, the model estimates the real exchange rate within a time varying parameter model, where a return-to-normality assumption about the parameters is assumed. Contrary to common belief, it is found that, except the initial four months of the stabilization programme, the Turkish lira remained undervalued for most of 2000. Also, one observes a pattern where the lira has been overvalued after the financial crisis of 1994 until 1998, and has displayed a tendency of undervaluation after then.

Suggested Citation

  • U. Ozlale & E. Yeldan, 2004. "Measuring exchange rate misalignment in Turkey," Applied Economics, Taylor & Francis Journals, vol. 36(16), pages 1839-1849.
  • Handle: RePEc:taf:applec:v:36:y:2004:i:16:p:1839-1849
    DOI: 10.1080/0003684042000279735
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Deniz Atasoy & Sweta C. Saxena, 2006. "Misaligned? Overvalued?. The Untold Story of the Turkish Lira," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 42(3), pages 29-45, May.
    2. 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.
    3. repec:rss:jnljef:v4i6p1 is not listed on IDEAS
    4. Levent Korap, 2006. "An Analysis of Central Bank Interventions on Forex Market For The Post-Crisis Period," Working Papers 2006/4, Turkish Economic Association.
    5. Faruk Selçuk, 2005. "The Policy Challenge with Floating Exchange Rates: Turkey’s Recent Experience," Open Economies Review, Springer, vol. 16(3), pages 295-312, July.
    6. repec:wsi:ijimxx:v:14:y:2010:i:05:n:s1363919610002908 is not listed on IDEAS
    7. Kasman, Adnan & Ayhan, Duygu, 2008. "Foreign exchange reserves and exchange rates in Turkey: Structural breaks, unit roots and cointegration," Economic Modelling, Elsevier, vol. 25(1), pages 83-92, January.
    8. ZhongXiang Zhang, 2012. "Institutional and policy frameworks for sustainable infrastructure," Chapters,in: Infrastructure for Asian Connectivity, chapter 8, pages 254-300 Edward Elgar Publishing.
    9. Kerim Peren Arin & Timur Han Gur, 2009. "Exchange rate versus monetary aggregate targeting: the Turkish case," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 2085-2092.
    10. Tonus, Özgür, 2007. "Gümrük Birliği sonrasında Türkiye'de dışa açıklık ve sanayileşme
      [Openness and industrialization in Turkey after the Customs Union]
      ," MPRA Paper 7121, University Library of Munich, Germany.

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