Munich Personal RePEc Archive

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.

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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.

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