The effects of exchange rate fluctuations on economic activity in Turkey

Date
2007
Advisor
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Instructor
Source Title
Journal of Asian Economics
Print ISSN
1049-0078
Electronic ISSN
1873-7927
Publisher
Elsevier BV
Volume
18
Issue
3
Pages
466 - 489
Language
English
Type
Article
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Abstract

The paper examines the effects of exchange rate fluctuations on real output, the price level, and the real value of components of aggregate demand in Turkey. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations help to determine aggregate demand through exports, imports, and the demand for domestic currency, and aggregate supply through the cost of imported intermediate goods and producers' forecasts of relative competitiveness. Anticipated exchange rate appreciation has significant adverse effects, contracting the growth of real output and the demand for investment and exports, while raising price inflation. Unanticipated exchange rate fluctuations have asymmetric effects that highlight the importance of unanticipated depreciation in shrinking output growth and the growth of private consumption and investment, despite an increase in export growth. © 2007 Elsevier Inc. All rights reserved.

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Keywords
Exchange rate fluctuations, Policy implications, Supply and demand channels, Asymmetry
Citation
Published Version (Please cite this version)