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The Monetary Models of the Turkish Lira/Dollar Exchange Rate: Long-run Relationships, Short-run Dynamics and Forecasting

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  • CIVCIR Irfan

Abstract

This article examines four versions of the monetary model for the Turkish lira/U.S. dollar exchange rate. The analysis focuses on two issues. First, we test whether the exchange rate is cointegrated with the long-run determinants predicted by economic theory. The sticky price versions of the monetary model support the hypothesis of cointegration. Then, we construct simultaneous equation systems that incorporate the long-run equilibrium relationships and complex short-run dynamics. The second issue is the ability of the monetary models to forecast the future exchange rate. We show that a fully dynamic out-of-sample forecast from the equilibrium-correcting monetary models significantly outperforms forecasts from random-walk models and differenced vector autoregressive models.
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  • CIVCIR Irfan, 2010. "The Monetary Models of the Turkish Lira/Dollar Exchange Rate: Long-run Relationships, Short-run Dynamics and Forecasting," EcoMod2003 330700038, EcoMod.
    • Handle: RePEc:ekd:003307:330700038
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    7. Musa, Abdullahi & Salisu, Afees A. & Aliyu, Victoria O. & Mevweroso, Chioma R., 2021. "Analysis of asymmetric response of exchange rate to interest rate differentials: The case of African Big 4," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).

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