Relationship Between Exports Of Processed Agricultural Products and Real Exchange Rate Shocks: The Case Of Turkey

Abstract

ABSTRACThis study is performed to present the effects of real exchange rate shocks on exports of processed agricultural products in Turkey. Although there are a lot of studies on this topic, but none of them has focused solely on the processed agri-products. As processed agri-products are getting more popular, with a more focused approach this study will not only enrich the literature, but also help policy-makers in devising policies. Vector Autoregressive (VAR) model is used in this study. The findings are interpreted according to the impulseresponse analysis and variance (forecast error) decomposition results. The results indicate that there is a significant relationship between real exchange rates and exports of processed agricultural products. This relationship is positive during the first quarter. However, later on, it becomes negative with a downward slope. On the other hand, the shocks of real exchange rate can explain only %0.2-0.7 of prediction error variance for exports of processed agricultural products. The findings can be useful in policy making.

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“…VAR model is used to detect causality between non-stationary and non-cointegrated variables, whereas, VECM (Vector Error Correction Model) is used to find causality between non-stationary but cointegrated variables [32]. Table 3; FPE (Final Prediction Error), AIC (Akaike), SC (Schwarz) and HQ (Hannan Quinn) information criteria identify first lag.…”