Can overvaluation prelude to crisis and harm growth in Turkey

Ahmet Murat Alper and İrfan Civcir

Journal of Policy Modeling, 2012, vol. 34, issue 1, 112-131

Abstract: This paper estimates the equilibrium real exchange rate of the Turkish lira to evaluate whether or not the overvaluation results in currency crisis and low growth rate over the period from the first quarter of 1987 to the fourth quarter of 2010. We follow the behavioral equilibrium exchange rate model, where the equilibrium real exchange rate depends on both the balance of payments approach and the Balassa–Samuelson hypothesis. The results indicate that although large and persistent overvaluation contributes to a crisis in Turkey, a relatively small overvaluation, contrary to both the Washington Consensus view and the Rodrik view, promotes the growth of Turkish economy.

Keywords: Equilibrium real exchange rate; Behavioral equilibrium exchange rate; Misalignment; Turkey (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:34:y:2012:i:1:p:112-131

DOI: 10.1016/j.jpolmod.2011.08.023

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