The asymmetric impact of real exchange rate misalignment on growth dynamics in Turkey

Waqar Khalid (), İrfan Civcir, Hüseyin Özdeşer and Javed Iqbal

Journal of Policy Modeling, 2023, vol. 45, issue 6, 1184-1203

Abstract: Earlier empirical studies examining the impact of exchange rate misalignment on economic growth were based on a symmetric approach, assuming that undervaluation and overvaluation affect economic growth symmetrically. However, recent empirical studies have shown that exchange rate misalignments asymmetrically affect economic growth. This study, therefore, examines the asymmetric effects of real exchange rate misalignments on economic growth in Turkey. The asymmetric effects of the non-linear autoregressive distributed lag model show that both overvaluation and undervaluation impede economic growth in Turkey. The study recommends that Turkey should maintain a market-based exchange rate policy to reduce currency misalignment. The study also recommends that the central bank of Turkey should intervene in the foreign exchange market for a short-term to mitigate the excessive distortions in exchange rates and avoid inefficiencies in resource allocation.

Keywords: Currency misalignment; Asymmetry; Exchange rate; Economic growth; NARDL; Turkey (search for similar items in EconPapers)
JEL-codes: C22 F31 O47 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:45:y:2023:i:6:p:1184-1203

DOI: 10.1016/j.jpolmod.2023.10.003

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