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Real Exchange Rate Volatility on Economic Growth under Intermediate and Flexible Exchange Rate Regimes: Empirical Evidence from Turkey

Year 2021, Volume: 1 Issue: 2, 76 - 87, 31.01.2022

Bahar Erdal

Abstract

The aim of this paper is to analyze empirically the effects of real exchange rate volatility on economic growth under intermediate and flexible exchange rate regimes in Turkey. The cointegration analysis and error correction models are used to test the long-run relationship and short-run effects respectively. The cointegration analysis shows that there is a long-run relationship between all the variables. The estimation results show that real exchange rate volatility has depressing effects on economic growth in both intermediate and flexible exchange rate regimes. The real exchange rate has positive effects on economic growth in the intermediate exchange rate regime and negative effects on economic growth in the flexible exchange rate regime. The inflation rate and financial deepening have positive effects on economic growth in both of the exchange rate regimes. While interest rate has negative effects on economic growth in the intermediate exchange rate regimes, it has positive effects on economic growth in the flexible exchange rate regime. The error correction models support the long-run relationship between the variables and the variables return to their long-run values in a high speed of adjustment.

Keywords

Real exchange rate volatility Economic growth Intermediate exchange rate regime Flexible exchange rate regime Cointegration Error correction model

References

  • Barro, R. J., Sala-i-Martin, X., 2004. Economic Growth, the MIT Press, Cambridge, Massachusetts, London, England.
  • Barguellil, Achouak, Ben-Salha Osama and Zmami, Mourad, Z., 2018. Exchange Rate Volatility and Economic Growth, Journal of Economic Integration, Vol. 33, No.2, June: 1302-1336.
  • Bayraktutan, Y., Özkaya, H., 2009. Ekonomik Büyüme ve Enflasyon Sonuçları Bakımından Farklı Kur Rejimleri, ODTÜ Gelişme Dergisi, 36, Haziran: 51-70.
  • Bhaskara, Rao B. (2006), Time Series Econometrics of Growth Models: A Guide for Applied Economists, MPRA (Munich Personal RePEc Archive) Paper No. 1547, (http://mpra.ub.uni-muenchen.de/1547/)
  • Bleaney, Michael and Francisco, Manuela (2007), Exchange Rate Regimes, Inflation and Growth in Developing Countries-An Assessment, The B.E. Journal of Macroeconomics,7 (1), Article 18, (http://www.bepress.com/bejm/vol7/iss1/art18).
  • Bubula, A., Ötker-Robe, İ., 2002.The Evolution of Exchange Rate Regimes Since 1990: Evidence From De Facto Policies, IMF Working Paper (WP/03/121).
  • Chirwa, T. G., Odhiambo, N. M., 2016. Macroeoconomic Determinants of Economic Growth: A Review of International Literature, South East European Journal of Economics and Business, Volume 11(2), 33-47.
  • Dickey, D. and Fuller, W. A., 1981. Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root, Econometrica, 49: 1057-1072.
  • Drobyshevsky, S., Bozhechkova, A., Trunin, P., Sinelnikova-Muryleva, E., 2017. The Effect of Interest Rates on Economic Growth, Gaidar Institute for Economic Policy Working Papers (wpaper-2017-300).
  • Eichengreen, B., 2008. The Real Exchange Rate and Economic Growth, Commission on Growth and Development, International Bank for Reconstruction and Development / The World Bank, Working Paper, No.4.
  • Engle, R., F., Granger, C. W. J., 1987. Cointegration and Error Correction: Representation, Estimation and Testing, Econometrica, 55: 251-276,
  • Erdal, B., Pınar, A. 2019. Major Determinants of Economic Growth under Intermediate and Flexible Exchange Rate Regimes: Empirical Evidence from Turkey, Advances in Management & Applied Economics, vol. 9, no. 1, 2019, 1-20 ISSN: 1792-7544 (print version), 1792-7552(online).
  • Erdal, B., 2018. The Relationship Between Financial Deepening and Economic Growth in the Long-Run and Short-Run and Causality Between Them: Empirical Evidence from Turkey, International Journal of Economics and Research, V9 i5: 13-24.
  • Erdal, B., Pınar, A., 2017. Real Exchange Rate Volatility and Sectoral Export Flows Under Intermediate and Flexible Exchange Rate Regimes: Empirical Evidence From Turkey, China-USA Business Review, Vol. 16, No. 6, June: 253-265.
  • Erdal, B., 2017. The Effects of Real Exchange Rate Volatility on Sectoral Investment: Empirical Evidence From Fixed and Flexible Exchange Rate Systems, Second Edition, Routledge, Oxford, New York.
  • Erdal, B., 2001. Investment Decisions Under Real Exchange Rate Uncertainty, The Central Bank Economic Review, 2001-I, ss. 25-47.
  • Federal Reserve Bank of St. Louis, Economic Data (FREDII), (https://fred.stlouisfed.org/). Ghosh, A. R., Ostry, J. D., Gulde, A.-M., Wolf, H. C., 1996. Does the Exchange Rate Regime Matter for Inflation and Growth? International Monetary Fund, Economic Issues, 2.
  • International Monetary Fund (IMF), International Financial Statistics (IFS), (http://imf.org).
  • Janus, T., Riera-Crichton, D., 2015. Real Exchange Rate Volatility, Economic Growth and the Euro, Journal of Economic Integration, Vol.30, No.1, March: 148-171 (http://dx.doi.org/10.11130/jei.2015.30.1.148).
  • Kızıldere, C., Kabadayı, B., Emsen, Ö. S., 2014. Dış Ticaretin Döviz Kuru Rejimlerine Duyarlılığı: Türkiye Üzerine Bir İnceleme. Uluslararası İktisadi ve İdari İncelemeler Dergisi, Yıl:6, Sayı:12, 39-53.
  • Levy-Yeyati, E., Sturzenegger, F., 2003. To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth, The American Economic Review, 93 (4): 1173-1193.
  • T.C. Ministry of Development, 2015. Economic and Social Indicators, 1950-2014, July, (http://www.sbb.gov.tr/wp-content/uploads/2018/11/Ekonomik_ve_Sosyal_Gostergeler_1950_2014.pdf).
  • Ndambendia, H., AL-Hayky, A., 2011. Effective Real Exchange Rate Volatility and Economic Growth in Sub-Saharan Africa: Evidence from Panel Unit Root and Cointegration Tests, The IUP Journal of Applied Finance, Vol. 17, No. 1: 85-94.
  • Onwuka, K. O., Obi, K. O., 2015. Exchange Rate Volatility and Growth Dynamics: Evidence from Selected Sub-Saharan African Countries, British Journal of Economics, Management&Trade, 6(1):61-77.
  • Pınar, A., Erdal, B., 2018. Reel Döviz Kuru Oynaklığının Sektörel Doğrudan Yabancı Yatırımlar Üzerindeki Etkileri: Türkiye Örneği, Maliye Dergisi, Temmuz-Aralık, No: 175:31-54
  • Pınar, A., Erdal, B., 2016. Para, Banka, Mali Kuruluşlar ve Uluslararası Mali Sistem, Ankara, Turhan Kitabevi.
  • Reinhart, C. M., Rogoff, K., 2002. The Modern History of Exchange Rate Arrangements: A Reinterpretation, NBER Working Paper No: 8963, June.
  • Solow, R. M., 1957. Technical Change and the Aggregate Production Function. Review of Economics and Statistics 39: 312-320.
  • Sabina, N. E., Manyo, T. S., Ugochukwu, U. S., 2017. Modeling Exchange Rate Volatility and Economic Growth in Nigeria, Noble International Journal of Economics and Financial Research, Vol. 02, No. 06: 88-97.
  • Salins, V., Bénassy-Quéré, A., 2010. A Case for Intermediate Exchange-Rate Regimes, Centre D’Études Prospectives Et D’ Informations Internationales, WP No: 14, August.
  • Sanginabadi, B., Heidari, H., 2012. The Effects of Exchange Rate Volatility on Economic Growth in Iran, Munich Personal RePEc Archive, MPRA Paper No. 52406, June, ( http://mpra.ub.uni-muenchen.de/52406/)
  • Schnabl, G., 2009, Exchange Rate Volatility and Growth in Emerging Europe and East Asia, Open Economies Review, 20: 565-587.
  • Schnabl, G., 2007. Exchange Rate Volatility and Growth in Small Open Economies at the EMU Periphery, European Central Bank Working Paper Series, No: 773, July. Turkish Statistical Institute, (www.tuik.gov.tr).
  • Uğurlu, E., 2006. Real Exchange Rate and Economic Growth: Turkey, MPRA Munich Personal RePEc Archive, (https://mpra.ub.uni-muenchen.de/60343/1/1819-4892-1-PB.pdf).
  • Ünlü, H. 2016. Döviz Kuru Oynaklığı ve Ekonomik Büyüme: Türkiye Örneği, Sosyoekonomi, Vol. 24 (27):11-24.

Year 2021, Volume: 1 Issue: 2, 76 - 87, 31.01.2022

Bahar Erdal

Abstract

References

  • Barro, R. J., Sala-i-Martin, X., 2004. Economic Growth, the MIT Press, Cambridge, Massachusetts, London, England.
  • Barguellil, Achouak, Ben-Salha Osama and Zmami, Mourad, Z., 2018. Exchange Rate Volatility and Economic Growth, Journal of Economic Integration, Vol. 33, No.2, June: 1302-1336.
  • Bayraktutan, Y., Özkaya, H., 2009. Ekonomik Büyüme ve Enflasyon Sonuçları Bakımından Farklı Kur Rejimleri, ODTÜ Gelişme Dergisi, 36, Haziran: 51-70.
  • Bhaskara, Rao B. (2006), Time Series Econometrics of Growth Models: A Guide for Applied Economists, MPRA (Munich Personal RePEc Archive) Paper No. 1547, (http://mpra.ub.uni-muenchen.de/1547/)
  • Bleaney, Michael and Francisco, Manuela (2007), Exchange Rate Regimes, Inflation and Growth in Developing Countries-An Assessment, The B.E. Journal of Macroeconomics,7 (1), Article 18, (http://www.bepress.com/bejm/vol7/iss1/art18).
  • Bubula, A., Ötker-Robe, İ., 2002.The Evolution of Exchange Rate Regimes Since 1990: Evidence From De Facto Policies, IMF Working Paper (WP/03/121).
  • Chirwa, T. G., Odhiambo, N. M., 2016. Macroeoconomic Determinants of Economic Growth: A Review of International Literature, South East European Journal of Economics and Business, Volume 11(2), 33-47.
  • Dickey, D. and Fuller, W. A., 1981. Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root, Econometrica, 49: 1057-1072.
  • Drobyshevsky, S., Bozhechkova, A., Trunin, P., Sinelnikova-Muryleva, E., 2017. The Effect of Interest Rates on Economic Growth, Gaidar Institute for Economic Policy Working Papers (wpaper-2017-300).
  • Eichengreen, B., 2008. The Real Exchange Rate and Economic Growth, Commission on Growth and Development, International Bank for Reconstruction and Development / The World Bank, Working Paper, No.4.
  • Engle, R., F., Granger, C. W. J., 1987. Cointegration and Error Correction: Representation, Estimation and Testing, Econometrica, 55: 251-276,
  • Erdal, B., Pınar, A. 2019. Major Determinants of Economic Growth under Intermediate and Flexible Exchange Rate Regimes: Empirical Evidence from Turkey, Advances in Management & Applied Economics, vol. 9, no. 1, 2019, 1-20 ISSN: 1792-7544 (print version), 1792-7552(online).
  • Erdal, B., 2018. The Relationship Between Financial Deepening and Economic Growth in the Long-Run and Short-Run and Causality Between Them: Empirical Evidence from Turkey, International Journal of Economics and Research, V9 i5: 13-24.
  • Erdal, B., Pınar, A., 2017. Real Exchange Rate Volatility and Sectoral Export Flows Under Intermediate and Flexible Exchange Rate Regimes: Empirical Evidence From Turkey, China-USA Business Review, Vol. 16, No. 6, June: 253-265.
  • Erdal, B., 2017. The Effects of Real Exchange Rate Volatility on Sectoral Investment: Empirical Evidence From Fixed and Flexible Exchange Rate Systems, Second Edition, Routledge, Oxford, New York.
  • Erdal, B., 2001. Investment Decisions Under Real Exchange Rate Uncertainty, The Central Bank Economic Review, 2001-I, ss. 25-47.
  • Federal Reserve Bank of St. Louis, Economic Data (FREDII), (https://fred.stlouisfed.org/). Ghosh, A. R., Ostry, J. D., Gulde, A.-M., Wolf, H. C., 1996. Does the Exchange Rate Regime Matter for Inflation and Growth? International Monetary Fund, Economic Issues, 2.
  • International Monetary Fund (IMF), International Financial Statistics (IFS), (http://imf.org).
  • Janus, T., Riera-Crichton, D., 2015. Real Exchange Rate Volatility, Economic Growth and the Euro, Journal of Economic Integration, Vol.30, No.1, March: 148-171 (http://dx.doi.org/10.11130/jei.2015.30.1.148).
  • Kızıldere, C., Kabadayı, B., Emsen, Ö. S., 2014. Dış Ticaretin Döviz Kuru Rejimlerine Duyarlılığı: Türkiye Üzerine Bir İnceleme. Uluslararası İktisadi ve İdari İncelemeler Dergisi, Yıl:6, Sayı:12, 39-53.
  • Levy-Yeyati, E., Sturzenegger, F., 2003. To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth, The American Economic Review, 93 (4): 1173-1193.
  • T.C. Ministry of Development, 2015. Economic and Social Indicators, 1950-2014, July, (http://www.sbb.gov.tr/wp-content/uploads/2018/11/Ekonomik_ve_Sosyal_Gostergeler_1950_2014.pdf).
  • Ndambendia, H., AL-Hayky, A., 2011. Effective Real Exchange Rate Volatility and Economic Growth in Sub-Saharan Africa: Evidence from Panel Unit Root and Cointegration Tests, The IUP Journal of Applied Finance, Vol. 17, No. 1: 85-94.
  • Onwuka, K. O., Obi, K. O., 2015. Exchange Rate Volatility and Growth Dynamics: Evidence from Selected Sub-Saharan African Countries, British Journal of Economics, Management&Trade, 6(1):61-77.
  • Pınar, A., Erdal, B., 2018. Reel Döviz Kuru Oynaklığının Sektörel Doğrudan Yabancı Yatırımlar Üzerindeki Etkileri: Türkiye Örneği, Maliye Dergisi, Temmuz-Aralık, No: 175:31-54
  • Pınar, A., Erdal, B., 2016. Para, Banka, Mali Kuruluşlar ve Uluslararası Mali Sistem, Ankara, Turhan Kitabevi.
  • Reinhart, C. M., Rogoff, K., 2002. The Modern History of Exchange Rate Arrangements: A Reinterpretation, NBER Working Paper No: 8963, June.
  • Solow, R. M., 1957. Technical Change and the Aggregate Production Function. Review of Economics and Statistics 39: 312-320.
  • Sabina, N. E., Manyo, T. S., Ugochukwu, U. S., 2017. Modeling Exchange Rate Volatility and Economic Growth in Nigeria, Noble International Journal of Economics and Financial Research, Vol. 02, No. 06: 88-97.
  • Salins, V., Bénassy-Quéré, A., 2010. A Case for Intermediate Exchange-Rate Regimes, Centre D’Études Prospectives Et D’ Informations Internationales, WP No: 14, August.
  • Sanginabadi, B., Heidari, H., 2012. The Effects of Exchange Rate Volatility on Economic Growth in Iran, Munich Personal RePEc Archive, MPRA Paper No. 52406, June, ( http://mpra.ub.uni-muenchen.de/52406/)
  • Schnabl, G., 2009, Exchange Rate Volatility and Growth in Emerging Europe and East Asia, Open Economies Review, 20: 565-587.
  • Schnabl, G., 2007. Exchange Rate Volatility and Growth in Small Open Economies at the EMU Periphery, European Central Bank Working Paper Series, No: 773, July. Turkish Statistical Institute, (www.tuik.gov.tr).
  • Uğurlu, E., 2006. Real Exchange Rate and Economic Growth: Turkey, MPRA Munich Personal RePEc Archive, (https://mpra.ub.uni-muenchen.de/60343/1/1819-4892-1-PB.pdf).
  • Ünlü, H. 2016. Döviz Kuru Oynaklığı ve Ekonomik Büyüme: Türkiye Örneği, Sosyoekonomi, Vol. 24 (27):11-24.
There are 35 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Research Articles
Authors

Bahar Erdal

Publication Date January 31, 2022
Published in Issue Year 2021 Volume: 1 Issue: 2

Cite

APA Erdal, B. (2022). Real Exchange Rate Volatility on Economic Growth under Intermediate and Flexible Exchange Rate Regimes: Empirical Evidence from Turkey. Industrial Policy, 1(2), 76-87.
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