The asymmetric effects of third-country exchange rate volatility on Turkish-German commodity trade

Abstract

This study examines the asymmetric effects of third-country exchange rate volatility on Turkish-German commodity trade. We analyzed annual time-series data spanning 1980-2022 for 79 (93) Turkish export (import) industries. The ARDL model found that third-country volatility, using the lira-dollar, had a significant short-term symmetric effect on 59 (67) Turkish export (import) industries. The NARDL model found that third-country volatility had a short-run asymmetric effect on trade volumes in more than half of the Turkish export and import industries. However, the short-run asymmetric effects turned into long-run asymmetric effects in about 50 percent of the industries. The results establish that nonlinear models lead to more significant short-run and long-run effects. The empirical evidence shows that the asymmetric assumption alone is insufficient, and third-country volatility should also be considered. The results suggest that all traders should consider how policy changes in a third-country may affect cross-country trade when designing their trade policies in a diversified trade environment.