Cointegration Analysis of the Interaction Between Changes in the Exchange Rates of the Us Dollar and Azerbaijani Manat With the Turkish Lira

Abstract

Purpose of the study. The article scrutinizes the prerequisites for the manifestation of cointegration associations amid the fluctuations in the AZN/TL and USD/TL exchange rates during the initial half of 2023, under the circumstances characterized by the precipitous depreciation of the Turkish lira.Materials and methods. The study employs contemporary econometric methodologies, encompassing the Johansen cointegration test, Granger causality test, vector error correction, and other pertinent approaches.Results. The research dynamically scrutinizes the underlying causes of the Turkish lira’s devaluation, its impact on the economy of the Republic of Azerbaijan, and its influence on the AZN/TL exchange rate. A cointegration model of reciprocal influence was established through the accurate application of econometric tests. The imbalance recovery coefficient was found to be -0.933745, ensuring that the trajectory reverts to its original state in the subsequent moment after deviating from the equilibrium state. In the case of USD/TL the first order differences, this coefficient is -0.242442, albeit statistically insignificant. The interpretation of the established model indicates that the depreciation of the Turkish lira against the dollar does not exert a significant impact on the fluctuations in the AZN/TL exchange rate.Conclusion. The findings of the research indicate that while the USD/TL does exert an influence on the AZN/TL, the devaluation of the Turkish lira does not significantly impact the economy of the Republic of Azerbaijan.

Keywords

• exchange rates
• non-stationary series
• engle-granger cointegration test
• error correction
• johansen test