Misaligned? Overvalued?. The Untold Story of the Turkish Lira

Scholars agree that overvalued exchange rates result in currency crises. This paper estimates the equilibrium real exchange rate for Turkey, finding that the lira was indeed overvalued before the crises in 1994 and 2001. However, the actual real exchange rate is at present close to the equilibrium l...

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Bibliographic Details
Published in:Emerging markets finance & trade 2006-05, Vol.42 (3), p.29-45
Main Authors: Atasoy, Deniz, Saxena, Sweta C.
Format: Article
Language:English
Subjects:
Balance of trade
Currencies
Depreciation
Economic impact
Emerging markets
Equilibrium exchange rates
equilibrium real exchange rate
Exports
Foreign exchange rates
Inflation rates
Liras
misalignment
Monetary policy
overvaluation
Overvalued currency
Real exchange rates
Studies
Trade finance
Turkish lira
Valuation
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Summary:Scholars agree that overvalued exchange rates result in currency crises. This paper estimates the equilibrium real exchange rate for Turkey, finding that the lira was indeed overvalued before the crises in 1994 and 2001. However, the actual real exchange rate is at present close to the equilibrium level, exposing the myth propagated by Turkish exporters that the lira's overvaluation is responsible for Turkey's uncompetitive exports. The paper also highlights the role for fiscal adjustment in macroeconomic stability.
ISSN:1540-496X
1558-0938
DOI:10.2753/REE1540-496X420302