The effects of exchange rate fluctuations on economic activity in Turkey

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Kandil M., Hakan B., Dinçer N. N.

JOURNAL OF ASIAN ECONOMICS, vol.18, no.3, pp.466-489, 2007 (ESCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 18 Issue: 3
  • Publication Date: 2007
  • Doi Number: 10.1016/j.asieco.2006.12.015
  • Journal Name: JOURNAL OF ASIAN ECONOMICS
  • Journal Indexes: Emerging Sources Citation Index (ESCI), Scopus
  • Page Numbers: pp.466-489
  • Keywords: Exchange rate fluctuations, Asymmetry, Supply and demand channels, Policy implications
  • TED University Affiliated: No

Abstract

The paper examines the effects of exchange rate fluctuations on real output, the price level, and the real value of components of aggregate demand in Turkey. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations help to determine aggregate demand through exports, imports, and the demand for domestic currency, and aggregate supply through the cost of imported intermediate goods and producers' forecasts of relative competitiveness. Anticipated exchange rate appreciation has significant adverse effects, contracting the growth of real output and the demand for investment and exports, while raising price inflation. Unanticipated exchange rate fluctuations have asymmetric effects that highlight the importance of unanticipated depreciation in shrinking output growth and the growth of private consumption and investment, despite an increase in export growth. (C) 2007 Elsevier Inc. All rights reserved.