The COVID-19 Process and the Exchange Rate Relation: An Application on Turkey

Abstract

The recent shocks in supply and demand in the world are not due to unexpected economic reasons; in fact, they are related to Covid-19 that causes rapidly spreading global health problems and life threats around the world. While the global powers are dealing with the social problems created by Covid-19 pandemic, they should not neglect the economic changes created by this pandemic. The most important of these economic changes in developing countries with high fragility is exchange rates, because exchange rates can directly affect many macroeconomic variables, from inflation to foreign trade, from the balance of payments to interests. In countries with high fragility due to the effect of pandemic, economic uncertainty causes fluctuations in the exchange rate. Is the reason for the change in the exchange rate, the number of cases or economic risks that may occur due to possible health problems?In this study, the impact of the number of new cases and the number of new deaths for the process of Covid-19 pandemic on the exchange rate in Turkey is examined. The daily data consider the number of new cases, the number of new deaths and exchange rate for the period of 16.03.2020–06.05.2020. The first step of the analysis, the stationary of the series is tested by Lee and Strazicich (2003) unıt root test which allowed structural break. Hatemi-J (2008) Cointegration Test that allow two structural breaks and Hacker-Hatemi-J Bootstrap causality test are used in the analysis. In the results of the Hatemi- J (2008) cointegration test, there is a medium and long-term relationship, with under structural breaks between the number of new cases and the number of new deaths and the exchange rate. According to the results of the analysis, it can be concluded that the number of new cases and the number of new deaths have a significant effect on the exchange rate, causing uncertainty in the economy.JEL Classification: I19, F31, C22

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