The effect of exchange rate volatility on employment: The case of Türkiye

Globalization has gained momentum from the past to the present and has become an important tool that provides relations between countries. Exchange rate volatility negatively affects the employment rates of developing countries such as Turkey indirectly. When the literature is examined, instead of the relationship between exchange rate volatility and employment, studies on exchange rate volatility and unemployment are generally found. In this study, the effect of exchange rate volatility on employment was investigated and current data was used in the analysis. This study aims to examine the effect of exchange rate volatility on employment. In this context, an empirical analysis was carried out using monthly data for the years 2015-2023. Time series analysis was applied as the econometric method in the study. Autoregressive Distributed Lag (ARDL) bounds test was used for the analysis method. Then, Augmented Dickey-Fuller (ADF) unit root test was performed and stationarity analysis was applied. ARCH-GARCH model was used to organize the volatility series. According to the findings, it was found that the independent variable, exchange rate volatility, had a negative effect on the employment rate. In other words, an increase in exchange rate volatility reduces the employment rate. The increase in the other independent variable, the manufacturing industry capacity utilization rate, causes an increase in the employment rate. It was observed that the COVID-19 dummy variable was statistically significant and had a negative effect. It also caused deviations in the long-term balance. When the error correction term coefficient was observed, it was concluded that the long-term deviations reached the balance again in an average of 3 months.