Exchange rate volatility : the case of Turkey

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2006

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Öztürk, Kevser

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In this study, different from previous studies, the explanatory power of Student-t distribution is compared to normal distribution by employing both standard GARCH and EGARCH models to dollar/ lira (USD/TRY) exchange rate. Then the impact of Central Bank of Republic of the Turkey’s (CBRT) decisions and actions on both the level of exchange rate and the volatility is investigated. Moreover the relationship between volatility and market liquidity is examined using spot foreign exchange (FX) market volume as a proxy. The results reveal that, in contrast to preceding findings, Student-t could not capture the leptokurtic property better than normal distribution does. Furthermore, an increase in Turkish government benchmark bond rates, CBRT FX purchase interventions and announcement of suspending/ decreasing-the-amount-of FX auctions lead Turkish lira to depreciate. Because of the significant positive leverage effect, the results of GARCH and EGARCH variance equations differ so much. Thereby the results should be evaluated cautiously. In addition it is observed that, only EGARCH model gives significant results when the spot market trading volume is included in the models.

Subject Keywords

Economics

URI

http://etd.lib.metu.edu.tr/upload/12608026/index.pdf
https://hdl.handle.net/11511/16476

Collections

Graduate School of Social Sciences, Thesis

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Citation Formats

K. Öztürk, “Exchange rate volatility : the case of Turkey,” M.S. - Master of Science, Middle East Technical University, 2006.