Relationship between real exchange rates and terms of trade : An application at Turkish

ivABSTRACTTHE RELATIONSHIP BETWEEN REAL EXCHANGE RATES AND TERMSOF TRADE : AN APPLICATION AT TURKISHHuriye Gonca D LERDepartment of EconomyAfyonkarahisar Kocatepe University, The Institute of Social SciencesJune 2006Advisor: Doç. Dr. smail AYDOĞUŞIn this study, the relationship between real exchange rates and terms of trade isexamined. Firstly, the relationship between real exchange rates and terms of trade isexamined from a theoretical view with a particular focus on variety of reel exchangerates, theories for reel exchange rates calculation methods and reel exchange rates?changes, and terms of trade and its? varieties. Secondly, the given relationship isexamined via the causality analysis depending on the data on real exchange rates andterms of trade related to 4 terms important in the Turkish economy during the period1984-2004. Finally, the results are discussed as follows: In the term of 1989:01-1994:03, there is a causal relationship from general terms of trade to real exchange ratesas well as from manufacturing terms of trade to real exchange rates. In the terms of1994:05-2000:10, a causal relationship is found from real exchange rates to generalterms of trade as well as from real exchange rates to manufacturing terms of trade. Interm of 2001:03-2004:12, there is a causal relationship from real exchange rates togeneral terms of trade.