The Relationshıp Between Exchange Rate and Foreign Trade in Turkey: Findings of The Fourier Bootstrap Toda Yamamoto Causality Test

Ali Eren Alper

Fiscaoeconomia, 2023, issue 2

Abstract: Over the period 1923-2001, during which Turkey has been implementing the fixed exchange rate regime, various devaluations have been made in order to maintain the foreign trade balance starting from September 7, 1946, but no exchange rate intervention yielded the expected positive results. Turkey switched to a floating exchange rate system as one of the structural transformations put into practice following the year 2001, and afterward, the impacts of the exchange rate determined by the market supply and demand conditions on the foreign trade balance have been one of the main research subjects.In this study, using the monthly data obtained over the period 2013:01 - 2022:12, the causality relationship between the real effective exchange rate and foreign trade in Turkey was investigated by performing the Fourier Bootstrap Toda Yamamoto causality test, which allows the structural change. According to the analysis results, no causality could be found between the real effective exchange rate and the imports and exports of Turkey. As a result of the study, it was determined that the policies that tried to steer the foreign trade balance by affecting the exchange rate in Turkey would not have been successful. Therefore, it was thought that it would have been more accurate for policies concentrating on improving the foreign trade balance to focus on the qualitative features of the produced goods and services.

Keywords: Real effective exchange rate; Fourier Toda Yamamoto; Causality test; Foreign trade (search for similar items in EconPapers)
JEL-codes: B41 C22 F10 F31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:fis:journl:230219

DOI: 10.25295/fsecon.1259216

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