Denomination composition of trade and trade balance: evidence from Turkey

Abstract

The currency denominations of a country's exports and imports are not necessarily the same. If this is the case, then a change in the exchange rate parity among major currencies will affect the trade balance. The empirical evidence provided from Turkey – where exports are mostly denominated in Euros and imports are mostly denominated in USD – suggests that an appreciation of the Euro against the USD would increase the output in the long-run, appreciate the local currency and improve the trade balance for the 1985:01 2003:07 period.

Acknowledgements

The views presented here are those of the authors; they do not necessarily reflect the official position of the State Planning Organization or its staff. Both authors would like to thank the members of the Pazar11 discussion group, Anita Akkaş, Bilin Neyapti, Özge Şenay and Taner Yiğit for their helpful comments and suggestions.

Notes

The denomination composition figures for exports and imports are taken from the Balance of Payments Report of the Central Bank of Turkey and covers the January–October 2003 period.

The later stages of the paper also provided a set of analyses that take into consideration the terms of trade changes.