Effect of exchange rate volatility on export and forecasting volatility: A case of Turkey

Putting the floating exchange rate system into force after the collapse of the Bretton Woods system has led to an increase on exchange rate volatility depending on floating exchange rates as well. Volatility of exchange rates has comprised the source of the atmosphere of risk and uncertainty and become a significant research topic in terms of its economic effects of both theoretical and empirical literature. In this study, variables determined from traditional export demand model have been used in an attempt to analyze the effect of exchange rate volatility on Turkey?s export. The quarterly data covering the period 1989:Q1-2007:Q1 have been used for these variables. For the analysis of the series, ADF and PP stationary tests have been used. Johansen Cointegration Test for long-term, Error Correction Model for short-term have been used to determine the relation between exchange rate volatility and export. As a result of the analysis, it has been found out that exchange rate volatility in both long and short term has an adverse effect on Turkey?s export.In the study has also been aimed to determine the exchange rate volatility of Turkey from the point of real effective exchange rate action figures. Hence, the monthly data have been used covering the period 1980:01-2010:05. Through volatility values determined by using ARCH / GARCH models, it has been attempted to forecast volatility of the period 2010:06-2011:06. As a result of the forecasting, it has been found that there will be a slight increase in the real exchange rate volatility of the period in question.Key Words: Exchange Rate Systems, Exchange Rate Volatility, Real Export, ARCH / GARCH Models, Johansen Cointegration Test