Real Effective Exchange Rate and Trade Balance Adjustment: The Case of Turkey

Author/Editor:

Plamen K Iossifov ; Xuan Fei

Publication Date:

June 28, 2019

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

There is an ongoing debate in the literature on whether global trade flows have become disconnected from the large real effective exchange rate movements in the wake of the global financial crisis. The question has important policy implications for the role of exchange rates in supporting growth and restoring external balance. In this paper, we use Turkey---a large and open emerging market economy that has experienced sizable swings of the real effective exchange rate---as a case study to test competing hypotheses. Our results lend support to the finding in existing cross-country studies that the real effective exchange rate remains an important determinant of trade flows. But, its effect is not symmetric in secular periods of appreciation and depreciation and is, oftentimes, dwarfed by the impact on trade flows of the income growth differential between trade partners.

Series:

Working Paper No. 19/131

Subject:

English

Publication Date:

June 28, 2019

ISBN/ISSN:

9781498312738/1018-5941

Stock No:

WPIEA2019131

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

38

Please address any questions about this title to publications@imf.org