Theoretical modeling basis of TL/US dollar exchange rate: An econometric practice

Abstract

In this chapter, TL/US dollar exchange rate is examined by using quarterly frequency data for the observation period of 2005Q4-2017Q4. Monetary model exchange rate determination mechanism has been introduced in a theoretical approach, and multivariate ARDL bounds testing has been applied to the data for estimation purposes. The findings indicate that the monetary exchange rate has a cointegrated relationship consistent with the fundamentals of economic theory. While the monetary exchange rate is in a positive interaction with the relative money supply, an increase in the relative real income level results in the appreciation of the national currency against the US dollar. Furthermore, as a priori assumed, a positive relationship has been found between the monetary exchange rate and the expected inflation rate variable.