Exchange rate volatility and Turkish–German commodity trade: an asymmetry analysis

Mohsen Bahmani-Oskooee and Huseyin Karamelikli

Studies in Economics and Finance, 2021, vol. 38, issue 4, 748-785

Abstract: Purpose - The purpose of this paper is to show that in some industries the linear model may not reveal any significance link between exchange rate volatility and trade flows but once nonlinear adjustment of exchange rate volatility is introduced, the nonlinear model reveals significant link. Design/methodology/approach - This paper uses the linear ARDL approach of Pesaranet al.(2001) and the nonlinear ARDL approach of Shinet al.(2014) to assess asymmetric effects of exchange rate volatility on trade flows between Germany and Turkey. Findings - This paper consider the experiences of 75 2-digit industries that trade between Turkey and Germany. When the study assumed the effects of volatility to be symmetric, the study found short-run effects in 31 (30) Turkish (German) exporting industries that lasted into the long run in only 10 (13) Turkish (German) exporting industries. However, when the study assumed asymmetric effects and relied upon a nonlinear model, the study found short-run asymmetric effects of volatility on exports of 55 (56) Turkish (German) industries. Short-run asymmetric effects lasted into long-run asymmetric effects in 10 (25) Turkish (German) exporting industries. All in all, we found that almost 25% of trade is hurt by exchange rate volatility. Originality/value - This is the first paper that assesses the possibility of asymmetric effects of exchange rate volatility on German–Turkish commodity trade.

Keywords: Germany; Turkey; Asymmetry analysis; 75 industries; Lira-euro volatility; F14; F30; F31 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-04-2020-0120

DOI: 10.1108/SEF-04-2020-0120

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