Abstract
This study examines the effects of exchange rate movements on the stock market in Turkey using a monthly VAR model for the period from January 1997 to November 2003. The full sample period contains two main changes in the exchange rate policy which happened in January 1990 and December 1999. To account for these changes, two different sub-periods January 1997 to November 1999 and January 2000 to November 2003 are also considered. The first period results indicate that there is a positive relationship between currency depreciation and most of the market indices. However, in the second period, the currency depreciation shows a negative impact in the initial level.
Notes
1 A similar identification strategy to construct monetary policy innovation was also used by Thorbecke (Citation1997) and Berument and Kutan (Citation2003).
2 Dickey and Fuller (Citation1981) and Perron's (Citation1989) Unit Root tests statistics show that all variables, except the interbank interest rate, are integrated on the order of one, I(1) (not reported). Lütkepohl and Reimers (Citation1992) suggest that running a cointegrated system in levels is asymptotically equivalent to running a vector error correction system. In the present analysis, the Johansen cointegration test (Johansen, Citation1988, Citation1991) indicates at least one cointegrating vector (not reported). Thus, VAR system is estimated in levels.