The validity of the real interest differential model for Turkey with Markov regime switching

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dc.authorscopusid57200762540
dc.authorscopusid57224442289
dc.contributor.authorAkdeniz, Coşkun
dc.contributor.authorİlhan, Ali
dc.date.accessioned2022-05-11T14:33:33Z
dc.date.available2022-05-11T14:33:33Z
dc.date.issued2021
dc.departmentFakülteler, İktisadi ve İdari Bilimler Fakültesi, İktisat Bölümü
dc.description.abstractFactors driving the fluctuations in exchange rates have always been on the agenda of economists. For this purpose, many theories have been developed to find the determinants of exchange rate movements. One of the best known of these theories is Frankel's (1979) Real Interest Differential (RID) Model, which explains exchange rate movements with a monetarist approach. RID model is an approach that tries to explain exchange rate changes among countries by the differences between money supplies, income levels, interest rates and expected inflation rates. Although this monetary model is useful in explaining long-term relationships, it has been considered as inadequate to explain the mutual dynamic interactions between monetary fundamentals and exchange rates that change over time. The nonlinear relationship between exchange rates and monetary fundamentals has led to the analysis of theoretical models to explain exchange rate movements with nonlinear methods. Accordingly, in this study the validity of Frankel's (1979) RID model is tested for Turkey during the 1990:01-2018:12 period by performing the Markov Regime Switching (MS) method. Findings show that there are two regimes reflecting; specifically the periods of decrease in exchange rates (first regime) and the periods of increase (second regime) throughout the analyzed period. According to the MS estimation results, while all the explanatory variables other than the relative interest rate are statistically significant in the first regime, the effect of relative income on the exchange rate is positive and contrary to expectations. In the second regime, all the explanatory variables except the relative income level are statistically significant and the coefficient signs are consistent with the predictions of the RID model. In this context, it is possible to state that the RID model helps to understand the movements in the USD/TL exchange rate in certain periods. © Peter Lang GmbH Internationaler Verlag der Wissenschaften Berlin 2020. All rights reserved.
dc.identifier.endpage115
dc.identifier.isbn9783631842546
dc.identifier.isbn9783631831915
dc.identifier.scopus2-s2.0-85107547931
dc.identifier.startpage99
dc.identifier.urihttps://hdl.handle.net/20.500.11776/7800
dc.indekslendigikaynakScopus
dc.institutionauthorAkdeniz, Coşkun
dc.institutionauthorİlhan, Ali
dc.language.isoen
dc.publisherPeter Lang AG
dc.relation.ispartofDynamic Optics in Economics: Quantitative, Experimental and Econometric Analyses
dc.relation.publicationcategoryKitap Bölümü - Uluslararasıen_US
dc.rightsinfo:eu-repo/semantics/closedAccess
dc.subjectExchange rate
dc.subjectMarkov regime switching
dc.subjectMonetary exchange rate model
dc.subjectReal interest differential model
dc.subjectTurkish economy
dc.titleThe validity of the real interest differential model for Turkey with Markov regime switching
dc.typeBook Chapter

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