The Effect of Exchange Rate Volatility on Export: The Case of Turkey (1995-2017)

Abstract

In this research, the effect of exchange rate volatility on exports in Turkey as measured by conditional variable variance models is examined using an ARDL (Autoregressive Distributed Lags Model) boundary test and error correction model methods with monthly data between January 1995 and January 2017. First, the relationship of cointegration among variables was researched, using the Bound Test Approach, which was developed by Pesaran, Shin & Smith (2001). After determining that a cointegration relationship exist, the long and short-term relationships between exchange rate volatility and exports were analyzed, using the ARDL and error correction model (ECM). The findings show, that both long and short term signs of the coefficients agree with expectations and are statistically significant. In other words, while the industrial production index and imports affect exports positively in both the long and short terms, the true effective exchange rate index and exchange rate volatility are negatively affected in both the long and short terms.