Turkish J- Curve: Trade Balance and Real Exchange Rate Relation

Şerife Gamze ALBAYRAK, Hüseyin Servet KORKMAZ

Özet


This study investigates the relationship between trade balance and real exchange rate relation using available data from 1992:M1 to 2015:M12 in Turkey. I take real effective exchange rate, industrial production indexes for both Turkey and five developed high income trade partner countries (Germany, France, Spain, Italy and the USA) proxies for real exchange rate and income effects and imports to exports rate as proxy for trade balance. In this context, cointegration and causality tests are used to explain possible relationship between variables. Empirical findings suggest that in the long run exchange rate and foreign trade balance have a relation. For the period, there exists J-curve for a very short time. There are bidirectional causality relationship between real effective exchange rate to trade balance and national income levels of five developed trade partner to trade balance. On the other hand, there is unidirectional causality running from trade balance to national income of Turkey.


Anahtar Kelimeler


J Curve, Trade Balance, Real Exchange Rate, Turkish Economy

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