Exchange rate volatility and foreign trade in Turkey: ARDL analysis

In the globalizing world, the foreign trade deficit, which is a critical economic problem for developing countries such as Turkey, and the factors causing this deficit have been and continue to be the subject of research. Fluctuations in exchange rates are reflected in price changes in the economy and situation becomes an important issue to be considered in terms of the concepts of foreign trade and economic growth, which will continue as long as humanity exists. For this reason, the main purpose of the study is to examine this relationship between the exchange rate and the foreign trade balance. In the first part of the study, monetary policy shocks are explained. The amount of money has an indirect and direct effect on the balance of payments. In the second part, information about exchange rate risk and management is given , and in the third part , information on international trade is given. In the fourth part of the study, literature research is included and the econometric application part, which is the main purpose of the study, is presented. In Turkey, the period of 2006:Q1-2021:Q3 was considered, stability analyzes were made, ARDL method was used for short and long term analysis. CPI-based (2006=100) real effective exchange rate, economic growth and goods balance variables are included in the ARDL analysis method. According to the results of this analysis, since it was determined that there was a cointegration relationship between the variables and the ARDL model was established, the explanatory power of the model was found to be as high as 0.91 and it was found to statistically significant. Although there is a significant relationship between the RDK (Real Effective Exchange Rate) series and the DA (Foreign Trade Balance) dependent variable in the long run, this relationship was not found to be significant in the short run. DA variable is affected by RDK in the long run, it is not affected in the short run. Finally, CUSUM and CUSUMSQ graphs were examined and it was concluded that there was no break for the variables. There have been many studies on this subject in the literature review, but what makes this study unique is the testing of the relationship between GDP and EER on the foreign trade balance variable ARDL in the period 2006:Q1:2021:Q3. Keywords: Exchange Rate, Shock, Risk, International Trade.