The asymmetric impact of real exchange rate misalignment on growth dynamics in Turkey

Khalid W., CİVCİR İ., Özdeşer H., Iqbal J.

Journal of Policy Modeling, vol.45, no.6, pp.1184-1203, 2023 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 45 Issue: 6
  • Publication Date: 2023
  • Doi Number: 10.1016/j.jpolmod.2023.10.003
  • Journal Name: Journal of Policy Modeling
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, Academic Search Premier, IBZ Online, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit, Political Science Complete, Public Affairs Index
  • Page Numbers: pp.1184-1203
  • Keywords: Asymmetry, Currency misalignment, Economic growth, Exchange rate, NARDL, Turkey
  • Ankara University Affiliated: Yes

Abstract

Earlier empirical studies examining the impact of exchange rate misalignment on economic growth were based on a symmetric approach, assuming that undervaluation and overvaluation affect economic growth symmetrically. However, recent empirical studies have shown that exchange rate misalignments asymmetrically affect economic growth. This study, therefore, examines the asymmetric effects of real exchange rate misalignments on economic growth in Turkey. The asymmetric effects of the non-linear autoregressive distributed lag model show that both overvaluation and undervaluation impede economic growth in Turkey. The study recommends that Turkey should maintain a market-based exchange rate policy to reduce currency misalignment. The study also recommends that the central bank of Turkey should intervene in the foreign exchange market for a short-term to mitigate the excessive distortions in exchange rates and avoid inefficiencies in resource allocation.