The Relationship between Crude Oil Prices, Real Effective Exchange Rate and Terms of Trade: A Causality Analysis for Turkey
Journal Title: BİLTÜRK Journal of Economics and Related Studies - Year 2019, Vol 1, Issue 2
Abstract
In this study, the relationship between real effective exchange rate, oil prices and the net terms of trade is examined. Countries have become more interdependent on each other because of the increasing openness rates. In order to import investment goods, countries must increase their revenues from exports. The terms of trade shows how international trade revenues are shared among the countries participating in the trade. An improvement in terms of trade leads to an inward transfer of income from the rest of the world countries. Changes in foreign trade policies, fluctuations in exchange rates, structural changes in supply and demand conditions affects the terms of trade by means of export and import prices. Real exchange and oil prices are the most important factors affecting demand and supply conditions respectively. Therefore, the effect of oil prices and the real exchange rate on the net terms of trade of Turkey have been researched for the period between 2010 and 2017. The results reveal that crude oil prices are the cause of the net terms of trade. On the other hand, there is no bilateral causality relationship between the real effective exchange rate and the net terms of trade.
Authors and Affiliations
Sevcan Güneş, Canan Yıldırım
Keywords
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