The Exchange Rate: A Shock Absorber or Source of Shocks in Turkey?

This study investigates the role of the exchange rate as shock-absorber as opposed to a source of its own shocks in Turkey during the period from 1990 to 2009 by employing a structural VAR framework with long-run and short-run restrictions. We find that the economic shocks have predominantly been as...

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Bibliographic Details
Published in:International economic journal 2012, 26(1), , pp.175-188
Main Author: Yilmaz, Ensar
Format: Article
Language:English
Subjects:
asymmetric shocks
Asymmetry
Crises
Economic models
Economic shock
Exchange rates
Foreign exchange
Foreign exchange markets
Foreign exchange rate
Foreign exchange rates
Markets
Monetary policy
Risk
Stabilization
Structural analysis
Supply & demand
Supply and demand
Trading
Turkey
United States
Variability
Variance
Vector-autoregressive models
경제학
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Summary:This study investigates the role of the exchange rate as shock-absorber as opposed to a source of its own shocks in Turkey during the period from 1990 to 2009 by employing a structural VAR framework with long-run and short-run restrictions. We find that the economic shocks have predominantly been asymmetric relative to one of the largest trading partner, the US. Our results provide evidence of the fact that while the major source of variability in exchange rates in the pre-2001 crisis period is mainly nominal shocks, a large proportion of the exchange rate variability can be attributed to supply and demand shocks in the post-2001 crisis period. This suggets that, rather than reacting to shocks to the foreign exchange market, such as shifts in risk premia, the exchange rate moves mainly in response to the real shocks during the post-2001 crisis period. Hence, there is a sizeable role for exchange rate stabilization during this period, absorbing those shocks and therefore requiring opposed monetary policy responses.
ISSN:1016-8737
1743-517X
DOI:10.1080/10168737.2012.653224