The Effects of Exchange Rates on the Trade Balance: Is there a J-curve in the Case of Turkey?


International Journal of Arts and Sciences, vol.3, pp.251-261, 2010 (Peer-Reviewed Journal)

  • Publication Type: Article / Article
  • Volume: 3
  • Publication Date: 2010
  • Journal Name: International Journal of Arts and Sciences
  • Journal Indexes: EBSCO Education Source
  • Page Numbers: pp.251-261



Abstract: The purpose of this study is to investigate the impacts of exchange rate changes on the trade balance and determine whether the J-curve effect holds for Turkey. The hypothesis suggests that following the depreciation of the exchange rate,the trade balance worsens in the short-run due to the price effect but improves in the long-run because the volume effect gradually outweighs the price effect. The impact of exchange rate volatility on the balance of trade of Turkey is estimated based on a reduced-form balance of trade model, using aggregate data for the period 2004:1-2009:12. The model sets trade balance as a function of domestic income, foreign income and the real exchange rate. The results also cover the impacts of the recent global crisis on the trade balance