Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
Comparison of Exchange Rate Determination Approaches
and Forecast for Turkey
Selçuk Koçi and Mehmet Çağrı Gözenii
In the period after 1980, Turkey being an emerging market has started to remove
limitations on financial markets and especially after the economic crisis in 2001,
Turkey has provided full liberty for capital movements and started to use flexible
exchange rate system. Because of these changes, global fluctuations or changes in
some variables cause exchange rates to fluctuate. As Turkey has had ever-growing
foreign trade with the rest of the world since 1980’s fluctuations in exchange rate is
damaging the Turkish economy by creating uncertainty. For determination of
exchange rates, there are various theories and approaches developed by economists.
Some of these approaches have been developed after liberalization of economies all
over the world together with globalization since other approaches could not estimate
the exchange rates well. Aim of this study is to compare exchange rate determination
approaches to reveal the best approach estimating exchange rate for Turkey. In this
context, this paper compares and analyzes different theories of exchange rate
determination by using various econometric methods for the period of 2002-2014.
After the detection of approach having the best estimation result, future exchange rate
of Turkey will be forecasted by using this approach. When literature is reviewed it is
seen researchers has been generally examining just one or two approaches of
exchange rate determination for Turkey. Difference of this study from others is to test
and compare many theories by using appropriate econometric methods and forecast
exchange rate in the future.
Keywords: Exchange Rate Determination, Comparison, Estimation, Forecast.
JEL: C32, F31
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Kocaeli University, Department of Economics: selcukkoc@kocaeli.edu.tr
Kocaeli University, Department of Economics: cagri.gozen@gmail.com