The Relationship between Exchange Rate Volatility and Economic Growth : An Example of Turkey

In the era of technology advancement and rapid globalization, the relationship between real exchange rate and economic growth has become one of the widely discussed topics in economics. The relationship helps in understanding the economic structure of a particular country and guides policy makers in economic decision making and assumption based planning. This paper not only empirically investigates the impact of the exchange rate, but also it examines the impact of exchange rate volatility on the economic growth because country's growth is highly influenced by exchange rate volatility. In the study, after investigating the presence of unit root in the time series of GDP, inflation and real effective exchange rate, Engle-Granger cointegration approach is used to explore Turkey's economic growth and exchange rate volatility relationship, by using quarterly data for the period 1998:1-2014:4. The results provide evidence for the existence of both short and long-term relationship between economic growth and real effective exchange rate