The Role of Private Capital Inflows and the Exchange Market Pressure on Real Exchange Rate Appreciation: The Case of Turkey

Abstract

The aim of this paper is to investigate the role of different private capital inflows and the exchange market pressure (EMP) on the real effective exchange rate (REER) appreciation of the currency in Turkey. To that end, the paper first investigates the long‐run equilibrium relationship and then employs Granger causality analysis. Results of the bounds test for cointegration within the autoregressive distributed lag (ARDL) modelling approach of Pesaran et al. (2001) reveal level relationship between the diverse private capital inflows, EMP and REER. Granger causality analysis suggests that there is a unidirectional causality running from all the concerned private capital inflows and EMP to REER. The ARDL model shows first that the impact of bank liabilities and portfolio investment liabilities are almost equal, high and positive. Second, foreign direct investment and workers' remittances have a negative but statistically insignificant effect. Third, EMP mitigates REER appreciation of the currency in Turkey. The empirical results suggest that speculative portfolio investment liabilities but particularly bank liabilities with short maturities should be better managed; more flexibility should be introduced to the floating exchange rate regime to avoid loss of competitiveness related with capital inflows; whereas foreign direct investments and remittances should be encouraged.

Modelling short-run and long-run predictors of foreign portfolio investment volatility in low-income Southern African Development Community countries

“…On the other hand, Carrieri, Errunza and Majerbi (2006) argue that the focus should be on real exchange rate fluctuations as opposed to nominal exchange rate volatility because the real exchange rate eliminates inflation and is a superior indicator of net foreign portfolio investment volatility. Empirical evidence also shows that there is an inverse relationship between exchange rate and portfolio flows (Bleaney & Greenaway 2001;Ersoy 2013;Waqas et al 2015).…”

Geli̇şmekte Olan Ülkelere Yöneli̇k Sermaye Hareketleri̇ Ve Ekonomi̇k Sonuçlari

“…Bu dönemi daha sonra, 1990'ların sonları ve 2000'lerin baĢlarında olduğu gibi, geliĢmekte olan ülke ekonomilerine sermaye giriĢlerinin aniden durması ve tersine dönmesi takip etmekte ve bundan dolayı paranın değer kaybetmesi ve krizler kendisini göstermektedir. Ġktisadi büyüme dıĢa bağımlı ve yapay nitelik kazanmakta, reel faiz ile döviz kuru arasındaki hassas dengelerin bozulmasıyla çöküntüye uğrayabil-mektedir (Ersoy, 2013: 35-36, Ergül, 2012.…”