Is Currency Depreciation or Appreciation Expansionary in Turkey?

Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 12 March 2018

Is Currency Depreciation or Appreciation Expansionary in Turkey?

Yu Hsing

Southeastern Louisiana University, United States of America

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10.31014/aior.1992.01.01.1

Abstract

Based on an extended IS-MP-AS model (Romer, 2000), this paper finds that real appreciation raised real GDP in Turkey during 2002.Q2-2011.Q2 whereas real depreciation helped increase real GDP during 2011.Q3-2017.Q1. In addition, a lower government debt-to-GDP ratio, a lower lagged world real interest rate, a lower real oil price or a lower expected inflation rate helped raise real GDP. These results suggest that the relationship between aggregate output and exchange rates may be subject to structural changes and that a prudent fiscal policy would be more appropriate.

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