The effects of exchange rate volatility on trade: evidence from Turkish agricultural trade

Abstract

In this article, an empirical study of the effect of Real Effective Exchange Rate Volatility (REERV) on Agricultural Export (AGX) and Agricultural Import (AGM) in Turkey was conducted. Studied period covers 1995 to 2007. In order to reach REERV, Generalized Autoregressive Conditional Heteroscedasticity (GARCH) (1,1) model was used. Long-term relationship between series was determined using Johansen cointegration test. The direction of this relationship, on the other hand, was determined using pairwise Granger causality. Our empirical results indicated that there was a positive long-term relationship between REERV and AGX series, while there was a negative long-term relationship between REERV and AGM. The relationship is unidirectional for both AGX and AGM series.

Keywords:

• REER
• GARCH
• Johansen cointegration
• Granger causality
• agricultural trade

JEL Classification:

• C22
• D51
• Q17

Notes

¹ Calculated based on the description by International Monetary Fund (IMF) based on 19 countries (Belgium, Germany, Spain, France, Switzerland, the Netherlands, Italy, the United Kingdom, the United States, Japan, Sweden, Austria, Canada, Korea, Taiwan, Iran, Brazil, China and Greece).