The monetary models of the Turkish Lira/US dollar exchange rate - Long-run relationships, short-run dynamics, and forecasting

CİVCİR İ.

EASTERN EUROPEAN ECONOMICS, cilt.41, sa.6, ss.43-69, 2003 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 41 Sayı: 6
  • Basım Tarihi: 2003
  • Doi Numarası: 10.1080/00128775.2003.11041064
  • Dergi Adı: EASTERN EUROPEAN ECONOMICS
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.43-69
  • Ankara Üniversitesi Adresli: Evet

Özet

This article examines four versions of the monetary model for the Turkish lira/U.S. dollar exchange rate. The analysis focuses on two issues. First, we test whether the exchange rate is cointegrated with the long-run determinants predicted by economic theory. The sticky price versions of the monetary model support the hypothesis of cointegration. Then, we construct simultaneous equation systems that incorporate the long-run equilibrium relationships and complex short-run dynamics. The second issue is the ability of the monetary models to forecast the future exchange rate. We show that a fully dynamic out-of-sample forecast from the equilibrium-correcting monetary models significantly outperforms forecasts from random-walk models and differenced vector autoregressive models.