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Impact of asymmetry on exchange rate determination: The role of fundamentals

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  • Korap, Levent

Abstract

This study tries to take a new look at the exchange rate determination model by employing recent developments in time series estimation methodologies. For this purpose, the validity of the sticky price monetary exchange rate model has been searched for the Turkish lira / US dollar case. Estimation results considering both linear and non–linear modeling approaches highly support the theoretical foundations and reveal explicitly the asymmetric nature of the model. The paper infers that since the nominal exchange rate seems to be determined through the economic fundamentals, it should not be used as a policy tool with a long–term perspective.

Suggested Citation

  • Korap, Levent, 2024. "Impact of asymmetry on exchange rate determination: The role of fundamentals," Emerging Markets Review, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:ememar:v:63:y:2024:i:c:s1566014124001018
    DOI: 10.1016/j.ememar.2024.101206
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    More about this item

    Keywords

    Exchange rate determination; Sticky price monetary model; Cointegration; Asymmetry; Dynamic multiplier effects; Turkish economy;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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