The relationship between real exchange rate and current account an analysis for economy of Turkey: (1991-2005)

THE RELATIONSHIP BETWEEN REAL EXCHANGE RATEAND CURRENT ACCOUNTAn Analysis For Economy Of Türkiye: (1991-2005)Taner AKÇACIABSTRACTThe crises in emerging market countries caused not only macro economicinstabilities in those countries but also caused the fiscal and social cost of those crises to bepaid by the whole society. In this respect, a number of criterion, such as openness to foreigntrade, the degree of capital account and economic growth have to be taken intoconsideration in determining the optimum exchange rate regime in emerging marketeconomies. In the pursued rate exchange of central bank who is responsible of theapplication of money policy, the defining item is the real exchange rate not the nominalexchange rate and the economical evaluation of applied exchange rate policy is based on therealized real exchange rate.The aim of this study is to analyses how the current account balance, which has abasic on the consideration of foreign economical relations is being affected by the exchangerate changes. The study consists of three main sections. In the first section of the study, thefeatures of exchange rate concepts and applied exchange rate regimes are explained. Afterexamining the exchange rate theories in literature, the factors affecting the exchange ratesare also listed.In the second section, by explaining the main account groups of the payment balance,the formation of the payment balance in an open economy and the continuity criteria ofcurrent account balance are examined.The third also the last section is due to the application in Türkiye. In this section, theimprovement of current deficit and real exchange rate are examined by taking into theconsideration the crisis in Türkiye economy and applied stability programs. Then, using thethree-month-long time series in 1991-2005; all the unit root tests, regression analysis andGranger causality tests, the relation between current deficit and real exchange rate areexamined and the results are evaluated due to these items. In the application part, the?Eviews 5.1? econometric program has been used to measure statistical hypothesis.The study ends with the conclusion part including the commands about theapplication results and suggestions.