Exchange rate overshooting: The example of Turkey

The aim of this study is to examine, within the framework of Dornbusch's (1976) exchange rate overshooting approach, how the Turkish economy responds to monetary and geopolitical risk shocks in terms of exchange rate, interest rate, inflation, and industrial production. The study employs an SVAR model constructed using monthly data covering the period 2011–2025. The results indicate that interest rates respond positively to monetary shocks. While an overshooting response is observed in the exchange rate, inflation reacts quickly and positively. In response to geopolitical risk shocks, industrial production shows no reaction, whereas inflation and the exchange rate exhibit limited responses. These findings highlight the importance of conducting economic policies in a strengthened, coordinated, and simultaneous manner. Keywords: Overshooting, Geopolitical Risk, Money Supply, SVAR Analysis