Exchange rate determination of TL/US$: a co-integration approach

Levent Korap (lkorap@hotmail.com)

MPRA Paper from University Library of Munich, Germany

Abstract: In our paper, we investigate exchange rate determination mechanism of TL/US$ for the 1987Q1-2006Q4 period using quarterly observations. Following a large literature review, we first highlight various approaches explaining monetary model exchange rate determination based on economic fundamentals, and then, construct an empirical model revealing both long-run stationary relationships and short-run dynamic adjustment processes of the nominal exchange rate for the Turkish economy. Our findings employing multivariate Johansen-Juselius type co-integrating approach indicate that nominal exchange rate is co-integrated with the fundamentals suggested by economics theory. Besides, short-run deviations from the fundamental-based equilibrium course of the nominal exchange rate have permanent effects on the long-run equilibrium exchange rate, and so have been stemmed from the existence of some form of hysteresis effects dominated in the nominal exchange rate.

Keywords: Exchange Rates; Sticky Price Monetary Model; Flexible Price Monetary; Economic Fundamentals; Randow Walk; Co-integration; Hysteresis; Turkish Economy (search for similar items in EconPapers)
JEL-codes: F31 F41 F47 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: EXCHANGE RATE DETERMINATION OF TL/US$:A CO-INTEGRATION APPROACH (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:19659

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