Revisiting the relationship between exchange rates and output within SVAR Blanchard-Quah framework: empirical evidence from Turkey, Germany and Russia

Abstract

It seems important to determine the effects of exchange rate fluctuations on economic performance. In this study, we attempt to shed some light the relationship between industrial production difference and exchange rates using two Structural Vector Autoregression (SVAR) Blanchard-Quah models for the cases of Turkey and Germany and Turkey and Russia. Results from the impulse response functions (IRFs) and forecast error variance decompositions (FEVDs) of the two SVAR models emphasized that effects of nominal exchange rate on industrial production difference and real exchange rate are temporary. Nevertheless, macroeconomic policies of Turkey, Germany and Russia influencing nominal exchange rates should be examined seriously for explaining the variations in industrial production difference and exchange rates.

Keywords

• exchange rates
• industrial production
• economic activity
• SVAR model