THE EFFECT OF US TRADE UNCERTAINTY ON THE DOLLAR-TURKISH LIRA EXCHANGE RATE

Abstract

Many economic, political and military developments, especially trade wars, in recent years have increased trade uncertainty. In addition, the emergence of the COVID-19 pandemic and the continuation of its effects have also increased trade uncertainties. All these developments had a significant negative impact on global trade. The trade policy uncertainty index developed by Baker et. al. (2016) provides important information in this context. The trade policy uncertainty index can significantly affect many related indicators, especially exchange rates. The aim of the paper is to investigate the effect of US trade policy uncertainty on the Dollar-TL rate. In this context, monthly data for the period 2000: 1-2020: 10 were used. In the study, Time series analysis techniques were used to perform the analysis. In this framework, the cointegration relationship between the variables was investigated with the Johansen cointegration test, the cointegration coefficients were estimated with DOLS, FMOLS and CCR estimators, and the causality relationships were examined with the Breitung and Candelon (2006) frequency domain causality test. According to the findings, there is a long-term cointegration relationship between the US trade policy uncertainty and the Dollar-TL exchange rate. On the other hand, increases in the US trade policy uncertainty increase the Dollar-TL exchange rate. Finally, while the US trade policy uncertainty is the cause of the dollar-TL exchange rate in the long run, it is not the cause in the short and medium run.