Determinants of Turkish real effective exchange rates

Burçak Müge Tunaer Vural

The Quarterly Review of Economics and Finance, 2019, vol. 73, issue C, 151-158

Abstract: Widening current account deficits went hand in hand with considerable volatility, and financial fragility for last three decades. Within these circumstances, Turkish Lira has been exposed to huge oscillations from time to time. These kind of substantial ups and downs raise the questions on the persistency of equilibrium exchange rates for TL. This paper aims to assess the long run equilibrium path for Turkish Lira and its fundamental determinants. Empirical investigation suggests that the main fundamental determinants of Turkish real effective exchange rates are the real GDP per capita relative to trading partners, oil prices, fiscal expenditures and international openness. Despite expectations, net foreign assets do not exhibit a significant long run relationship with real exchange rates in Turkey. Persistent rise in productivity measure (GDP per capita relative to major trading partners) is associated with the appreciation pressure on equilibrium exchange rates.

Keywords: PPP; Exchange rate determination; B-S effect (search for similar items in EconPapers)
JEL-codes: F31 F37 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:73:y:2019:i:c:p:151-158

DOI: 10.1016/j.qref.2018.06.004

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