The effect of real exchange rate on unemployment in Turkey

Abstract

This thesis is intended to analyze the influence of real exchange rate on total and urban unemployment in Turkish economy over 1988 – 2006 periods by using the original work of Frenkel (2004) for Turkey. In addition to this analysis, an alternative model is suggested to overcome some limitations of Frenkel (2004). In this thesis, three channels of influence, namely macroeconomic channel, development channel and labor intensity channel, are taken into account in the search of unemployment’s response to changes in real exchange rate. The results for both analysis show that real exchange rate influences unemployment positively through labor intensity channel for both total and urban unemployment in Turkey. Moreover, suggested alternative model achieves to quantify the seperate effects of the influence channels which was not achieved in Frenkel (2004) due to the limitations of the model.