The Exchange Rate Uncertaınty On Foreıgn Trade: Evıdence From Panel Coıntegratıon Analysıs For Turkey

dogru, bulent (2015): The Exchange Rate Uncertaınty On Foreıgn Trade: Evıdence From Panel Coıntegratıon Analysıs For Turkey.

Abstract

This study examines the impact of exchange rate uncertainty on bilateral trade between Turkey and 10 major trading partners, using FMOLS panel cointegration analysis and recently developed Westerlund panel cointegration test with multiple structural break for the annual data between 1985 and 2011. Empirical results suggest that the exchange rate uncertainty is an important determinant of foreign trade behavior, the exchange rate uncertainty generally deteriorates Turkish exports to many countries with the exception of the France and Germany, the depreciation in Turkish Lira stimulates export and discourage import, and an increment in domestic income stimulates the household and firm’s import demand. These findings will shed light in understanding the economic result of sudden increase and decrease in exchange rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: : FMOLS, Westerlund panel cointegration test, foreign trade, uncertainty, EGARCH
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

References

Akhtar, M.A. and Spence-Hilton, R. ,1984. Effects of Exchange Rate Uncertainty on German and US Trade, Quarterly Review, Federal Reserve Bank of New York, Spring, pp. 7–16.

Asseery, A. and Peel, D.A.,1991 .The Effects of Exchange Rate Volatility on Exports. Economics Letters, vol. 37, pp. 173–177

Ay, A., Üçler, G and Koçak, İ. ,2009. Reel Döviz Kuru Dalgalanmalarının Dış Ticaret Üzerine Etkisinin Sınır Testi Yaklaşımı İle Analizi: 1996-2006 Türkiye Örneği. Selçuk Üniversitesi İktisadi ve İdari Bilimler Fakültesi Sosyal ve Ekonomik Araştırmalar Dergisi, 9 ,17 :51-67

Bahmani-Oskooee, M., Wang Y., ,2008. Impact of Exchange Rate Uncertainty on Commodity Trade Between the US and Australia. Aust. Econ. Papers 47, 235–258.

Bollerslev, Tim ,1986. Generalized Autoregressive Conditional Heteroskedasticity. Journal of Econometrics, 31 ,3 : 307–327.

Brada, Josef C. and Mendez, Jose A. 1988. Exchange Rate Risk, Exchange Rate Regime and the Volume of International Trade, KYKLOS, vol. 41, pp. 263–280.

Breitung, J. ,2000 . The Local Power of Some Unit Root Tests for Panel Data. In: Baltagi, B.H. ,Ed. , Nonstationary Panels, Panel Cointegration and Dynamic Panels, Advances in Econometrics 15, pp. 161–177

Bini-Smaghi, L. 1991. Exchange Rate Variability and Trade: Why is it so Difficult to Find any Relationship, Applied Economics, vol. 23, pp. 927–936.

Erdem, E., Nazlioglu, S., and Erdem, C. ,2010 . Exchange Rate Uncertainty and Agricultural Trade: Panel Cointegration Analysis for Turkey. Agricultural Economics, 41,6 , 537-543.

Im, K.S., Pesaran, M.H., Shin, Y. ,2003.Testing for Unit Roots In Heterogeneous Panels. J. Econometrics 115, 53–74

Hongwei Du and Zhen Zhu 2001. The Effect of Exchange-rate Risk on Exports: Some Additional Empirical Evidence, Journal of Economic Studies, vol. 28, issue: 2, pp. 106–121

Kasman, A. ,2003 . Türkiye’de Reel Döviz Kuru Oynaklığı ve Bunun İhracat Üzerine Etkisi: Sektörel Bir Analiz. Uludağ Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 22,2 , 169-186.

Kasman, S. and Ayhan, D. ,2006. Macroeconomic Volatility under Alternative Exchange Rate Regimes in Turkey, Central Bank Review 2006,6,2 :37-58

Köse, N., Ay, A., and Topallı, N. ,2008. Döviz Kuru Oynaklığının İhracata Etkisi: Türkiye Örneği ,1995 2008 . Gazi Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 10,2 , 25-45.

Lastrapes, W.D. and Koray, F. 1990. Exchange Rate Volatility and US Multilateral Trade Flows, Journal of Macroeconomics, vol. 12, issue 3, pp. 341–362.

Levin, A., Lin, C., Chu, C.J. ,2002 . Unit Root Rests In Panel Data: Asymptotic and finite-sample properties. J. Economet. 108, 1– 24.

Lee, J. 1999, The Effect of Exchange Rate Volatility on Trade in Durables, Review of International Economics, vol. 7, issue 2, pp. 189–201.

McKenzie, M.D. 1998. The Impact of Exchange Rate Volatility on Australian Trade Flows, Journal of International Financial Markets, Institutions and Money, vol. 8, pp. 21–38.

Nelson, D.B., ,1991 , Conditional Heteroskedasticity in Asset Returns: A New Approach, Econometrica, 59, 347-370.

Pedroni, P., ,1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bull. Econ. Stat. 61,Special Issue , 653– 670.

Pedroni, P. ,2000. Fully Modified OLS for Heterogeneous Cointegrated Panels. In: Baltagi, B.H. ,Ed. , Nonstationary Panels, Panel Cointegration and Dynamic Panels, Advances in Econometrics, 15, pp. 93–130.

Tunçsiper, B. and Öksüzler, O. ,2012 . Döviz Kuru Riski Türkiyenin İhracatını Azaltır mı? Hata Doğrulama Yöntemi ile Bir Ampirik Değerlendirme. Uluslararası Yönetim İktisat ve İşletme Dergisi, 2,3 , 1-13.

Westerlund, J., Edgerton, D.L. ,2007 . A Panel Bootstrap Cointegration Test. Economics Letters 97, 185–190.

Westerlund, J., 2006. Testing For Panel Cointegration with Multiple Structural Breaks. Oxford Bulletin Economics and Statistics. 68, 101–132.