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Abstract
Previous studies that assessed the impact of exchange rate volatility on Turkey’s trade flows, assumed that the effects are symmetric. We change that assumption by assessing the possibility of asymmetric effects of the real lira-euro GARCH-based volatility on trade flows of 62 2-digit industries that trade between Turkey and EU. Like previous research when we assumed symmetric effects and estimated a linear model for each industry, we found short-run effects of volatility on 26 Turkish exporting industries to EU and on 40 EU exporting industries to Turkey. These short-run effects lasted into the long run only in 11 Turkish and 19 EU exporting industries. However, when we estimated a nonlinear model, we found short-run asymmetric effects of volatility on 38 Turkish and 49 EU exporting industries. Short-run asymmetric effects translated into long-run asymmetric effects in 19 industries in both groups.
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