The relationship between exchange rate volatility and monetary policy instruments, credit default swap premium and VIX: The case of Türkiye

Exchange rate volatility influences various macroeconomic factors and affects the economic performance of Türkiye, which is a developing and open economy. In this context, it is important to understand the factors that cause exchange rate volatility and the relationship between exchange rate volatility and the policies implemented to control it. Applying symmetric and asymmetric causality analysis techniques, this study examines the relationship between CPI-based real effective exchange rate volatility and credit default swap premium, VIX and various monetary policy instruments (CBRT weighted average funding cost, CBRT funding volume and exchange rate adjusted M2 money supply index) for the period of 2011-2023. The findings indicate that there is a causal relationship between exchange rate volatility and the analyzed variables, suggesting that these variables are among the factors that cause exchange rate volatility and should be considered in efforts to manage exchange rate volatility.