Macroeconomic effects of exchange rate uncertainty: The case of Turkey

Countries have switched to flexible exchange rate system in 1973 when Bretton Woods system collapsed. The uncertainty in exchange rates, which was the results of the flexible exchange rate system, become an important economic problem for countries. This uncertainty, which was seen in exchange rates, can have affected macroeconomic indicators such as inflation, interest, balance of payments and economic growth. In this study, exchange rate uncertainty and effects of uncertainty on macroeconomic variables have been examined theoretically and empirically. In order to test macroeconomic effects of exchange rate uncertainty for study of Turkey's economy exchange rate uncertainty period of 1991:Q4-2020Q1, consumer price indexs, real industrial production index, deposit interest rate and current account balance variables have been used. Bound test approach, which developed by Pesaran et al. (2001) has been used to reveal possible variables between exchange rate uncertainty and macroeconomic variables. First of all, unrestricted error correction model was used for that aim. Finally, autoregressive distributed lag was created to determine the direction and size of the long term relationship between the series, which decided having cointegrate relationship between the series, which decided having cointegrate relationship between them. In the study, a long term relationship has been found between inflation, interest rate and current accound excluding exchange rate uncertainty and real industrial production index. However the direction and size of the long term relationship could be revealed only for the rate of interest. Keywords: Exchange Rate Uncertainty, Bound Test Approach, ARDL Model, Unrestricted Error Correction Model