Does Devaluation of Turkish Lira Improve Merchandise Trade Deficit?

Ali Mohammed Adem and Bengü Vuran
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Ali Mohammed Adem: PhD student in Istanbul University, Social Sciences Institute, Department of Finance, Istanbul, Turkey
Bengü Vuran: Associate Professor, Istanbul University,Avcılar Campus, Faculty of Business Administration, Department of Finance, Istanbul, Turkey

International Journal of Economics and Financial Research, 2018, vol. 4, issue 3, 64-71

Abstract: After the fall of Bretton Woods System, exchange rates become the focus of researchers and politicians. When a floating exchange rate system was started researchers investigated the impact of exchange rate volatility on international trade but the development of derivative instruments changed the researchers focus from currency volatility towards the impact of currency appreciation or depreciation on international trade. The main objective of this research was to investigate the short run and long run relationship between Turkey’s merchandise trade deficit and real effective exchange rate. The monthly data was collected from Central Bank of Republic of Turkey from March 2005 to September 2017. Autoregressive distributed lag (ARDL) approach and Error correction model (ECM) was used for the analysis. The finding shows that the variables have long run relationship but it is not significant at 5% significance level. The short run model also shows the insignificant results. These findings have the following policy implication: Turkey cannot improve the merchandise trade deficit by devaluating its currency.

Keywords: ARDL; Merchandise trade; Short run; Long run; Real effective exchange rate. (search for similar items in EconPapers)
Date: 2018
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