The effect of Central Bank SWAP transactions on exchange rates: The case of Turkey

It is known that with the globalization of trade, the volatility of the exchange rate is eliminated and it has an effect on macroeconomic factors. Negative fluctuations in the exchange rate affect the country's economy negatively, cause a decrease in investments and prevent economic growth. For this reason, countries aim to ensure price and financial stability by intervening in the exchange rate. The fundamental role of Central Banks emerges precisely in this sense. It is tried to prevent the fluctuations in the exchange rate by developing exchange rate policies. One of these exchange policies is to make swap transactions to protect the country from damage during possible currency increases and reduce excessive volatility. The economic crisis and the Covid-19 pandemic have also negatively affected the Turkish economy. This study is of great importance and contributes to the literature in terms of determining the relationship between swap transactions and exchange rates in the pre- and post-pandemic periods. In the study, the relationship between the value of swap transactions and exchange rate indicators was examined by considering daily data within the scope of 02.01.0218-29.04.2022. In order to determine the effect of swap transactions on the exchange rate, impulse response test based on VAR analysis, Decomposition of variance analysis and Granger causality test were used. According to the findings, it has been determined that swap transactions do not have much effect on the exchange rate.