Does Exchange Rate Volatility Really Influence Foreign Trade? Evidence from Turkey

Abstract

We investigated the influence of exchange rate volatility on foreign trade for an emerging economy, namely Turkey, by using monthly data spanning from 1990 to 2015. We employed the Johansen cointegration test, the vector error correction model, or VECM, and the VAR Granger causality test within the framework of the Toda-Yamamoto procedure in order to capture both the long-term and short-term effects of exchange rate volatility. We report that there is a long-term relationship between exchange rate volatility and Turkish exports. In addition, while exchange rate volatility has a positive effect on Turkish exports in the long-term, this relationship disappears in the short-term.