The Effect of Financial Openness and Interest Rate on Exchange Rate Volatility: New Generation Time Series Analyzes

Year 2024, Volume: 38 Issue: 2, 120 - 127, 22.04.2024

Sevda Yapraklı Elifnur Tığtepe

https://doi.org/10.16951/trendbusecon.1468730

Abstract

In this study, the effects of financial openness and interest rate on exchange rate volatility, which are important especially for the internal and external balance purposes of developing countries, were investigated. For this purpose, quarterly data for the period 2002Q1-2023Q1 regarding financial openness, interest rates, and exchange rate volatility determined by the EGARCH method for Turkey were used in the study. In the study, ADF unit root test and the new generation time series analyses, F-Kruse unit root and Fourier-Shin cointegration tests, were used. Furtermore, DOLS model was estimated to determine the long-term coefficients. The results of used analyzes showed that the increase in financial openness and interest rates had respectively negative and positive effects on exchange rate volatility in Turkey. These findings have pointed that Turkey is a country in need of external borrowing, and it should be given importance financial stability as well as interest rates.

Keywords

Exchange Rate Volatility, Financial Openness, Interest Rate, Turkey, EGARCH, Fourier Shin Cointegration Test, DOLS

Finansal Dışa Açıklık ve Faiz Oranının Döviz Kuru Oynaklığına Etkisi: Yeni Nesil Zaman Serisi Analizleri

Abstract

Bu çalışmada özellikle gelişmekte olan ülkelerin iç ve dış denge amaçları açısından son derece önemli olan finansal dışa açıklık ve faiz oranının döviz kuru oynaklığı üzerindeki etkileri araştırma konusu yapılmıştır. Bu amaçla çalışmada; Türkiye için finansal açıklık, faiz oranları ve EGARCH yöntemi ile tespit edilen döviz kuru oynaklığına ilişkin 2002Q1-2023Q1 dönemine ait çeyreklik veriler kullanılmıştır. Çalışmada, geleneksel ADF birim kök testinin yanı sıra yeni nesil zaman serisi analizleri olan F-Kruse birim kök ve Fourier-Shin eş-bütünleşme testleri kullanılmıştır. Ayrıca uzun dönem katsayısı belirlemek için DOLS modeli tahmin edilmiştir. Yapılan analizlerin sonuçları, Türkiye’de döviz kuru oynaklığı üzerinde finansal dışa açıklıktaki ve faiz oranlarındaki artışın sırasıyla negatif ve pozitif etkileri olduğunu göstermektedir. Söz konusu bulgular, Türkiye’nin dış borçlanmaya ihtiyacı olan bir ülke konumunda olduğuna, faizlerin yanı sıra finansal istikrara da önem verilmesi gerektiğine işaret etmektedir.

Keywords

Döviz Kuru Oynaklığı, Finansal Dışa Açıklık, Faiz Oranı, Türkiye, EGARCH, Fourier Shin Eşbütünleşme Testi, DOLS

References

• Aizenman, J. (2003). On the hidden links between financial and trade opening  (NBER Working Papers 9906). National Bureau of Economic Research, Inc. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=435480
• Avdjiev, S., & Spasova, T. (2022). Financial openness and inequality. Bank of International Settlement (BIS). https://www.bis.org/publ/work1010.pdf
• Abdii, Z., Muturi, W., & Olweny, T. (2020). Factors affecting exchange rate volatility in Kenya. International Journal of Economics, Commerce and Management, 8(6), 355-379.
• Ajao, M. G., & Igbekoyi, O. E. (2013). The determinants of real exchange rate volatility in Nigeria. Academic Journal of Interdisciplinary Studies, 2(1), 459-471.
• Akardeniz, E., & Engin, C. (2019). TCMB faiz kararlarının döviz kuru volatilitesine etkisi. Finansal Araştırmalar ve Çalışmalar Dergisi, 11(20), 1-27.
• Al-Abri, A., & Baghestani, H. (2015). Foreign investment and real exchange rate volatility in emerging Asian countries. Journal of Asian Economics, 37, 34-47.
• Amor, T. H., & Sarkar, A. U. (2008). Financial integration and real exchange rate volatility: evidence from South and South East Asia. International Journal of Business and Management, 3(1), 112-124.
• Becker, R., Enders, W., & Lee, J. (2006). A stationarity test in the presence of an unknown number of smooth breaks. Journal of Time Series Analysis, 27(3), 381-409.
• Benita, G., & Lauterbach, B. (2007). Policy factors and exchange rate volatility: panel data versus a specific country analysis. International Research Journal of Finance and Economics, 7(7), 7-23.
• Bristy, H. J. (2014). Impact of financial development on exchange rate volatility and long-run growth relationship of Bangladesh. International Journal of Economics and Financial Issues, 4(2), 258-263.
• Calderon, C. (2003). What Drives Volatility in Real Exchange Rates? Evidence for Industrial Countries. Central Bank of Chile, Mimeo.
• Calderon, C. (2004). Trade openness and real exchange rate volatility: panel data evidence. (Working Paper, No: 294). Central Bank of Chile. https://dialnet.unirioja.es/servlet/articulo?codigo=1064739
• Calderon, C., & Kubota, M. (2009). Does higher openness cause more real exchange rate volatility?. (No: 4896). The World Bank Policy Research. https://openknowledge.worldbank.org/server/api/core/bitstreams/2d9d9d85-199c-51eb-862d-63d99c8d878b/content
• Calderon, C., & Kubota, M. (2018). Does higher openness cause more real exchange rate volatility?. Journal of International Economics, 110, 176-204.
• Caporale, G. M., Ali, F. M., Spagnolo, F., & Spagnolo, N. (2017). International portfolio flows and exchange rate volatility in emerging Asian markets. Journal of International Money and Finance, 76, 1-15.
• Caporale, G. M., Hadj Amor, T., & Rault, C. (2014). Sources of real exchange rate volatility and international financial integration: A dynamic generalised method of moments panel approach. Journal of International Development, 26(6), 810-820.
• Chen, SS. (2006). Revisiting the interest rate-exchange rate nexus: a markov-switching approach. Journal of Development Economics, 79(1), 208-224.
• Cömert, H. (2016). İmkânsız Üçleme’den İmkânsız İkilem’e: Bretton Woods dönemi ve sonrası para politikası. Hacettepe University Journal of Economics and Administrative Sciences, 34(1), 115-136.
• Devereux, M. B., & Lane, P.R. (2003). Understanding real exchange rate volatility. Journal of International Economics, 60, 109-132.
• Demiroz, D.M. (2001). Codependent Volatility Patterns in Daily Foreign Exchange and Interest Rates: A Case Study of Turkey. 75th International Conference on Policy Modeling for European and Global Issues. Conference Book, Brussels, Belgium.
• Doğan, İ., Afsal, M.Ş., Aydın, B., & Gürbüz, S. (2017). Faiz oranları ve döviz kuru dönemsel analizi: Türkiye örneği. International Journal of Academic Value Studies, 3(13), 199-205.
• Domac, I., & Mendoza, A. (2002). Is there room for forex interventions under inflation targeting framework? evidence from Mexico and Turkey. (Discussion Paper No: 0206). Research and Monetary Policy Department, Central Bank of the Republic of Turkey. https://www.tcmb.gov.tr/wps/wcm/connect/ea1be395-71a6-40f8-99ee a7e1d3052e4c/dpaper58.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-ea1be395-71a6-40f8-99ee-a7e1d3052e4c-m3fw5F1
• Dua, P., & Sen, P. (2006). Capital flow volatility and exchange rates: the case of India. (Working Paper Series No: 144). Delhi School of Economics. https://www.researchgate.net/publication/4801640_CAPITAL_FLOW_VOLATILITY_AND_EXCHANGE_RATES--_THE_CASE_OF_INDIA
• Edwards, S., & Rigobon, R. (2009). Capital controls on inflows, exchange rate volatility and external vulnerability. Journal of International Economics, 78(2), 256-267.
• Emeç, H., Gülay, E. (2013). Nominal döviz kuru oynaklığının enflasyon, faiz oranı ve dış ticaret hacmindeki değişimler ile olan ilişkisi: Türkiye örneği. Finans Politik ve Ekonomik Yorumlar, 578, 77-95.
• Gadanecz, B., & Mehrotra, A. (2013). The Exchange Rate, Real Economy and Financial Markets. BIS Papers chapters, in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, 73, 11-23.
• Galbraith, J.W., & Zinde-Walsh, V. (1999). On the distributions of augmented dickey-fuller statistics in processes with moving average components. Journal of Econometrics, 93 (1), 25-47.
• Grydaki, M., & Fountas, S. (2010). What explains nominal exchange rate volatility? evidence from the Latin American countries. (Discussion Paper Series No: 10/2010). University of Macedonia Department of Economics. https://www.researchgate.net/publication/46473272_What_Explains_Nominal_Exchange_Rate_Volatility_Evidence_from_the_Latin_American_Countries
• Güler, A. (2017). Oynak ekonomik koşullar altında döviz kuru oynaklığının modellenmesi: Türkiye için dinamik zaman serisi analizi. International Journal of Academic Value Studies, 3(14), 39-47.
• Guris, B. (2019). A new nonlinear unit root test with fourier function. Communications in Statistics-Simulation and Computation, 48(10), 3056-3062.
• Hassan, A., Abubakar, M., & Dantama, Y.U. (2017). determinants of exchange rate volatility: new estimates from Nigeria. Eastern Journal of Economics and Finance, 3(1), 1-12.
• Hausmann, R., Panizza, U., & Rigobon, R. (2006). The long-run volatility puzzle of the real exchange rate. Journal of International Money and Finance, 25 (1), 93-124.
• Husted, S., & Melvin, M. (2013). International Economics (9th Ed.,). New Jersey: Pearson Education.
• Keefe, H.G. (2021). The transmission of global monetary and credit shocks on exchange market pressure in emerging markets and developing economies. Journal of International Financial Markets, Institutions and Money, 72(C).
• Khan, R.S.A. (2014). Analysis if the factors affecting exchange rate variability in Pakistan. Journal of Business and Management, 16(6), 115-121.
• Kılıçarslan, E. (2016). Döviz kuru ve makroekonomik etkileri. Yayımlanmış Yüksek Lisans Tezi. Çorum: Hitit Üniversitesi Sosyal Bilimler Enstitüsü.
• Krugman, P. R., & Maurice, O. (2009). International Economics: Theory and Policy (8th Ed.,). Boston: Pearson Education.
• Kularatne, C., & Roy H. (2008). Why are some exchange rates more volatile than others? evidence from transition economies. https://www.researchgate.net/publication/236973705_Why_are_some_exchange_rates_more_volatile_than_others_Evidence_from_Transition_Economies
• Lin, S., & Ye H. (2011). The role of financial development in exchange rate regime choices. Journal of International Money and Finance, 30(4), 641-659.
• Majumder, S.C. (2016). Inflation and its impacts on economic growth of Bangladesh. American Journal of Marketing Research, 2(1), 17-26.
• Mirchandani, A. (2013). Analysis of macroeconomic determinants of exchange rate volatility in India. International Journal of Economics and Financial Issues, 3(1), 172-179.
• Mohammed, S., Mohammed, A., Nketiah-Amponsah, E. (2021). Relationship between exchange rate volatility and interest rates evidence from Ghana. Cogent Economics & Finance, 9(1), 1893258, 1-19.
• Nelson, D.B. (1991). Conditional heteroskedasticity in asset returns a new approach. Econometrica, 59(2), 347-370.
• Oaikhenan, H.E., & Aigheyisi, O.S. (2015). Factors explaining exchange rate volatility in Nigeria: Theory and empirical evidence. Economic and Financial Review, 53(2), 47-77.
• Obstfeld, M. (1985). Floating exchange rates: Experience and prospects. Brookings Papers on Economic Activity, 2, 369-450.
• Pham, T.H.H. (2018). Liquidity and exchange rate volatility. Document de Travail Working Paper. https://halshs.archives-ouvertes.fr/halshs-01708633
• Quinn, D. P., Carla I. (1997). The origins of financial openness: a study of current and capital account liberalization. American Journal of Political Science, 41(3), 771-813.
• Rose, A.K. (1994). Exchange rate volatility, monetary policy, and capital mobility: empirical evidence on the holy trinity. (No. 4630). NBER Working Paper. https://www.nber.org/papers/w4630
• Sever, E., & Demir., M. (2007). Türkiye’de bütçe açığı ile cari açık arasındaki ilişkilerin VAR analizi ile incelenmesi. Eskişehir Osmangazi Üniversitesi İİBF Dergisi, 2(1), 47-63.
• Stock, J.H. & Watson, M.W. (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica, 61(4), 783-820.
• Tezer, H. (2020). İktisat literatüründe dördüz açıklar hipotezi ve Türkiye ekonomisi üzerine bir araştırma. Business and Management Studies: An International Journal, 8(2), 1479-1500.
• Türkiye Cumhuriyet Merkez Bankası. https://evds2.tcmb.gov.tr/
• Tsong, C.C., Lee, C.F., Tsai, L.J., Hu, T.C. (2016). The fourier approximation and testing for the null of cointegration. Empirical Economics, 51(3), 1085-1113.
• Yang, Y., & Peng, Z. (2023). Openness and real exchange rate volatility: evidence from China. Open Economies Review. https://link.springer.com/article/10.1007/s11079-023-09718-5#Sec45
• Yapraklı, S., & Kaplan, F. (2015). Dışa açıklık ve reel döviz kuru oynaklığı: yükselen piyasa ekonomilerine ilişkin bir panel veri analizi. İktisat İşletme ve Finans, 30(356), 09-28.
• Yapraklı, S., Bozma, G., & Akdağ, M. (2018). BIST şehir endekslerinde oynaklığın ölçülmesi: alternatif ekonometrik modellerin karşılaştırmalı olarak incelenmesi. Finans, Politik ve Ekonomik Yorumlar Dergisi, 55(639), 67-86.
• World Bank. https://databank.worldbank.org/source/global-economic-monitor-(gem)