The effects of exchange rate volatility on Turkish foreign trade

In this study, the association between exchange rates, exchange rate volatility and foreign trade is investigated theoretically and also historical development of Turkish economy is examined chronologically and in the last part of the study, econometric analysis took place. In the last part; in order to analyse the impact on Turkey's foreign trade of the volatility in the exchange rate, variables determined from the export and import demand model is used. The data quarterly includes 2002: Q1-2020: Q1 period. ADF and KPSS tests are performed in the analysis in order to determine the order of stationarity for the series. ARDL bounds testing approach is applied to detect the long-term relationship between export and import of exchange rate volatility. The empirical findings provide strong evidence that there is no statistically long term relationship between exports and volatility statistically in Turkish economy, the real income of the outside world, and real exchange rate for the period between 2002.Q1-2020.Q1. Since there is no long-term relationship between the variables, the error correction model and long-term coefficients estimation could not be applied. ARDL results for the import model constructed in the study indicated that there is a cointegration relationship between real imports, real domestic income, real exchange rates and real exchange rate volatility for the period 2002:Q1-2020:Q1 in Turkish economy Increases in gross domestic product and increases in real exchange rate affects, both in the short term and in the long term, real import positively; on the other side it affects real exchange rate volatility and real imports negatively. An increase in exchange rate volatility negatively affects Turkish imports. This negative relationship between the two variables can be explained by the investors' evaluation of the sudden change in exchange rates as a risk factor and their reluctance to make an investment decision in the risk-bearing economic market. And this sudden change in exchange rate can be caused by that if the exchange rate is aimed to increase, it also increases the cost of imported goods due to the increase in production costs. Market actors who do not want to bear excess costs tend to reduce their imports considering these circumstances. .