How does the exchange rate movement affect macroeconomic performance? a VAR analysis with sign restriction approach – evidence from Turkey
Date
2012
Authors
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Source Title
Economics Bulletin
Print ISSN
Electronic ISSN
1545-2921
Publisher
Economics Bulletin
Volume
32
Issue
1
Pages
295 - 305
Language
English
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Abstract
In this paper, we assess the effect of exchange rate movement on macroeconomic performance by differentiating the source of exchange rate movement as either an expansionary monetary policy or a portfolio preference shock using quarterly data from Turkish economy for the period 1987:Q1 to 2008:Q3. Empirical evidence suggest that if the depreciation of the exchange rate stems from an expansionary monetary policy shock, then the effect of currency depreciation on the economy is expansionary. On the other hand, if currency depreciation comes from a portfolio choice allocation, then the effect of exchange rate deprecation on the economy is contractionary.