The effect of exchange rate volatility on foreign trade-The case of Turkey

The relationship between foreign trade volume and reel exchange rate has been discused in recent years. The purpose of this study is to investigate the relationship between real exchange rate and foreign trade volume. In this study, data set consisting of 168 observations in a monthly frequency spanning the 2003:01- 2016:12 period is applied for each variable within the analysis. Natural logarithms of variable were used in the analysis. ADF(Augumented Dickey Fuller),PP(Philips Pherron's) and KPSS(Kwiatkowski-Phillips-Schmidt-Shin) root test were initially used to test stationary of the series and first differences were stable for all series. Subsequently, the existence of Co-integregration between variables was investigated by using Johansen Co-integration Test and the Direction of the relationship between variables was determined by using Granger casuality Test. As a result of the analyses carried out, it was determined that casual relationship exist from foreign trade volume to reel exchange rate however there is no casual relationship from reel exchange rate to foreign trade.