Author :
Abstract
This paper examines the association between the foreign trade balance and inflation in Türkiye based on monthly data and selected macroeconomic variables. The analysis is conducted through the Autoregressive Distributed Lag approach with cumulative dynamic multipliers, and Frequency Domain Granger Causality in order to capture both time-domain and frequency-domain dynamics separately. The analysis results indicate that the real effective exchange rate and inflation have negative effects on the foreign trade balance, whereas interest rates exhibit a positive effect in the long run. Short-run dynamics indicate that the effects of shocks to inflation and industrial production on the trade balance vary across lags; in contrast, the positive impact of interest rate shocks becomes more visible over time. Frequency-domain results reveal unidirectional causality from inflation, interest rates, and industrial production to the trade balance at different horizons, while no causal relationship is found for the real effective exchange rate. Notably, the causal influence of inflation is more evident in the short run, whereas the effects of interest rates and industrial production become more relevant over longer horizons. In addition, the long-run positive effect of commercial loan interest rates points to the market effect being more pronounced than the exchange rate effect.
Keywords
Abstract
This paper examines the association between the foreign trade balance and inflation in Türkiye based on monthly data and selected macroeconomic variables. The analysis is conducted through the Autoregressive Distributed Lag approach with cumulative dynamic multipliers, and Frequency Domain Granger Causality in order to capture both time-domain and frequency-domain dynamics separately. The analysis results indicate that the real effective exchange rate and inflation have negative effects on the foreign trade balance, whereas interest rates exhibit a positive effect in the long run. Short-run dynamics indicate that the effects of shocks to inflation and industrial production on the trade balance vary across lags; in contrast, the positive impact of interest rate shocks becomes more visible over time. Frequency-domain results reveal unidirectional causality from inflation, interest rates, and industrial production to the trade balance at different horizons, while no causal relationship is found for the real effective exchange rate. Notably, the causal influence of inflation is more evident in the short run, whereas the effects of interest rates and industrial production become more relevant over longer horizons. In addition, the long-run positive effect of commercial loan interest rates points to the market effect being more pronounced than the exchange rate effect.
