The impact of exchange rate regimes on the volatility of macroeconomic variables: The case of Turkey

Exchange rate regime choice is one of the most important macroeconomic policies. Recently, the new regimes (basket-band-crawl, managed float-plus, fundemantal equilibrium exchange rate, soft margins, pegging to the price of fundemantal export product) and also the approaches intended for the determination of the regime choice, such as ?bipolar view?, ?fear of floating? and ?fear of pegging?, cause the importance of regime choice to increase.This study examines the impact of exchange rate regimes on the volatility of macroeconomic variables in Turkey for the period 1982-2007. This study also focuses on the difference between announced and actual regimes. By using iterated cumulated sum of squares algorithm, symmetric and asymmetric conditional heteroscedasticity models with structural breaks are estimated. The results suggest that the volatility of export, import, total credit volume and stock exchange index is affected by the announced exchange rate regimes; whereas the volatility of foreign exchange reserves, nominal and real exchange rates, export and total national currency deposits is affected by the actual regimes. Therefore, the results indicate that there is neither ?announced regime neutrality? nor ?actual regime neutrality?.Dissertation consists of three sections. First section includes the exchange rate regimes, international monetary systems and the choice of regime. Second section discusses the concept of ?regime neutrality? and ?volatility puzzle? to clarify the relationship between exchange rate regimes and macroeconomic variables. Related literature is analyzed.Third section covers the historical development of exchange rate regimes in Turkey, the methods used in the empirical part and finally, the results and comments.