Trade Balance, Real Exchange Rate and Trade Policy Uncertainty in Türkiye: Evidence from the SVAR Approach

Year 2024, , 63 - 75, 26.06.2024

Fatma Ünlü

https://doi.org/10.26650/ekoist.2024.40.1354907

Abstract

In recent years, the trade wars, the global economic crisis and protectionist policies have created a climate of trade policy uncertainty in the world economy. The increased uncertainty had important impacts on economic variables, in particular on foreign trade and exchange rates. As a result, the attention of researchers and policy makers has been focused on this area. Also, it is a well-known fact that uncertainties have a greater impact on developing countries with economies that are more vulnerable to shocks and risks. From all of these facts, the aim of this study is to investigate the relationships between exchange rate, trade balance and trade policy uncertainty by using structural VAR (SVAR) analysis for the 1960:Q1-2020:Q4 period in Türkiye. The results show that there exists a significant relationship between trade policy uncertainty, the trade balance and the exchange rate in the long term. The response of trade policy uncertainty to shocks to the trade balance and to the exchange rate is statistically significant and negative. The response of the exchange rate to trade balance shocks is statistically significant and positive. An increase in the trade balance increases the exchange rate and reduces trade policy uncertainty.

Keywords

Trade, exchange rate, trade policy uncertainty, structural VAR

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