The role of real exchange rate in the trade balance between Turkey and Libya: Evidence from nonlinear and wavelet-based approaches

Abstract

The time-invariable models would suffer to give a clearer description to the relationship between exchange rate and trade flows. Therefore, the growing strand of literature has failed to reach a consensus. This study aims to contribute to this discussion by employing not only nonlinear model to capture the asymmetric effect, but also to detect the time frequencies and explore the lead-lag relations between real exchange rate and trade balance between Libya and its major trade partner ‘Turkey’ by applying both NARDL and wavelet coherence approaches, using monthly data spanning January 2013 to December 2020, selected based on data availability. The findings disclose that trade balance responds to the real exchange rate asymmetrically. The asymmetric effect is skewed more in the negative direction, as the impact of negative change is significant and greater than the positive change in long run. While the oil price shocks positively impact trade balance, economic policy uncertainty negatively affects trade balance. The wavelet coherence analysis indicates that real exchange rate and economic policy uncertainty are lagging in trade balance, while oil price leads trade balance. Among various other policy suggestions, we recommend that stable exchange rate through the intervention in the foreign exchange market will promote the trade balance at the end.

Renewable energy, economic freedom and economic policy uncertainty: New evidence from a dynamic panel threshold analysis for the G-7 and BRIC countries

“…As studies have provided solid evidence for the positive relationship between fossil energy consumption and environmental degradation, the focus has shifted toward renewable energy consumption. Therefore, recent studies have examined the nexus between renewable energy consumption, economic growth, and CO 2 emissions (Amoah et al 2020 ; Ali et al 2021 ; Alsanusi et al 2022 ; Alvarado et al 2022a , 2022b , c ; Assi et al 2021 ; Avci and Sarigul 2022 ; Baig et al, 2022 ; Deng et al 2022 ; Fatima et al 2022 ; Hussain et al 2022 ; Jiang et al 2022 ; Irfan et al 2021 ; Pata and Işık, 2021 ; Kartal 2022 ; Rehman et al 2022a , b , c ; 2021a , 2021b , 2021c ; Serttas et al, 2022 ; Yasir et al 2022 ; Shahzad et al 2021 ; Dogan et al 2020 ; Dogru et al 2020 ; Işık 2013 ; Işık et al 2020a ; Ongan et al 2017 , 2018a , b ; Işık and Radulescu, 2017 ; Işık 2010 ; Bölük and Mert 2015 ; López-Menéndez et al 2014 ).…”