The Effects of Exchange Rate Fluctuations on Economic Activity in Turkey

Posted: 30 Jul 2018

See all articles by Magda Kandil

Magda Kandil

International Monetary Fund (IMF)

Hakan Berument

Bilkent University - Department of Economics

N. Nergiz Dincer

TED University; TED University Trade Research Center (TEDUTRC); Economic Research Forum

Date Written: 2007

Abstract

The paper examines the effects of exchange rate fluctuations on real output, the price level, and the real value of components of aggregate demand in Turkey. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations help to determine aggregate demand through exports, imports, and the demand for domestic currency, and aggregate supply through the cost of imported intermediate goods and producers’ forecasts of relative competitiveness. Anticipated exchange rate appreciation has significant adverse effects, contracting the growth of real output and the demand for investment and exports, while raising price inflation. Unanticipated exchange rate fluctuations have asymmetric effects that highlight the importance of unanticipated depreciation in shrinking output growth and the growth of private consumption and investment, despite an increase in export growth.

Keywords: Exchange Rate Fluctuations; Asymmetry; Supply and Demand Channels; Policy Implications

JEL Classification: F41; F31; E32; E31

Suggested Citation

Kandil, Magda and Berument, Hakan and Dincer, Nazire Nergiz, The Effects of Exchange Rate Fluctuations on Economic Activity in Turkey (2007). Journal of Asian Economics, Vol. 18, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=3210664

Magda Kandil

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Hakan Berument (Contact Author)

Bilkent University - Department of Economics ( email )

06533 Ankara
Turkey

Nazire Nergiz Dincer

TED University ( email )

Ziya Gokalp Bulvari No: 48
Kolej Çankaya, Ankara 06420
Turkey

TED University Trade Research Center (TEDUTRC) ( email )

Ziya Gokalp Bulvari No: 48
Kolej Çankaya, Ankara 06420
Turkey

Economic Research Forum ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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