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      Measuring exchange rate misalignment in Turkey

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      Author
      Özlale, Ü.
      Yeldan, E.
      Date
      2004
      Source Title
      Applied Economics
      Print ISSN
      0003-6846
      Electronic ISSN
      1466-4283
      Publisher
      Routledge
      Volume
      36
      Issue
      16
      Pages
      1839 - 1849
      Language
      English
      Type
      Article
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      123
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      Abstract
      Turkey has embarked an extensive dis-inflation and stabilization program in December 1999. The programme exclusively relied on a nominally pegged (anchored) exchange rate system for dis-inflation and on fiscal austerity. In February 2001, however, Turkey experienced a severe financial crisis which necessiated the dismantling of the exchange rate anchor and a switch to a regime of free float. This article proposes a new methodology to measure exchange rate misalignment for Turkey over the period January 1992 to December 2001. In a single equation framework, the model estimates the real exchange rate within a time varying parameter model, where a return-to-normality assumption about the parameters is assumed. Contrary to common belief, it is found that, except the initial four months of the stabilization programme, the Turkish lira remained undervalued for most of 2000. Also, one observes a pattern where the lira has been overvalued after the financial crisis of 1994 until 1998, and has displayed a tendency of undervaluation after then. © 2004 Taylor and Francis Ltd.
      Keywords
      Currency market
      Exchange rate
      Inflation
      Measurement method
      Methodology
      Eurasia
      Turkey
      Permalink
      http://hdl.handle.net/11693/24224
      Published Version (Please cite this version)
      http://dx.doi.org/10.1080/0003684042000279735
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      • Department of Economics 661
      • Department of International Relations 523
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