Exchange rate volatility and export in Turkey: Does the nexus vary across the type of commodity?

Abstract

Turkey has experienced a rapid increase in exports during the last two decades. In addition, there has been a significant increase in the exchange rate and its volatility in recent years. Hence, the empirical examination of the volatility-export nexus in a comprehensive framework seems to be important to provide insights for policymakers. In this study, we investigate how the exchange rate volatility affects Turkey's exports to its major partners namely, Belgium, France, Germany, Italy, Netherlands, Russia, Spain, the UK, and the USA for the period of 2002:01-2019:12. Considering the existence of an asymmetric effect of volatility on trade, we separate positive changes of volatility from negative changes via the partial sum concept and introduce nonlinearity into the estimation and testing procedure. Our results indicate that (i) exchange rate volatility plays quite important role for Turkey's export, (ii) asymmetry matters for better understanding the volatility-export nexus, (iii) the impact of volatility is country and commodity-specific, (iv) exchange rate volatility shows higher impacts on capital and consumption goods export. Lastly, exchange rate volatility affects exports in opposite directions in the short and long-run. Both low and high volatility generally increase (decrease) Turkey's exports in the short-run (long-run). These results provide important implications for policymakers. (C) 2022 The Authors. Published by Elsevier B.V. on behalf of Central Bank of The Republic of Turkey.