Permanent and transitory shocks on real and nominal exchange rates in Turkey during the post-1980 period

Haluk Erlat and Guzin Erlat

Atlantic Economic Journal, 1998, vol. 26, issue 4, 379-396

Abstract: With the adoption of export-led growth and a liberal exchange rate regime in a post-1980, high-inflation country like Turkey, it becomes important to measure the relative importance of permanent and temporary shocks on real and nominal exchange rates (RER and NER, respectively) and the decomposition of the RER into these two components. This task was undertaken by using a structural vector autoregressive approach which entailed restricting the long-run response of the RER only to real shocks. Both the bilateral and the effective rates were considered. For the post-1980 period, several discoveries were made. First, except for Italy, real shocks were dominant in explaining the fluctuation in the RER. Second, the changes in the price ratio determined the permanent component in the RER, again, with the exception of Italy. Third, it takes three to four years for both the RER and the NER responses to reach their permanent levels. Copyright International Atlantic Economic Society 1998

Date: 1998
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DOI: 10.1007/BF02299451

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