POST-1980 EXCHANGE RATE MOVEMENTS IN TÜRKİYE: EMPIRICAL INSIGHTS FROM THE DOLLAR

Abstract

This paper examines the uncertainty dynamics of the USD/TRY exchange rate over the period from January 1980 to September 2025, a span marked by profound structural transformations in the Turkish economy, recurrent financial crises, regime shifts in exchange rate policy, and deepening integration with global financial markets. Given the central role of the exchange rate in shaping inflationary pressures, external debt sustainability, trade competitiveness, and overall financial stability in Türkiye, an accurate characterization of USD/TRY conditional heteroscedasticity models is of critical importance. The empirical analysis proceeds in two stages. First, the dollar variable is modeled using AR(I)MA specifications. The estimation results indicate that current exchange rate values are influenced by both past exchange rate realizations and random shocks originating in previous periods. In the second stage, the dollar variable is modeled with symmetric (ARCH, ARCH-M, GARCH, and GARCH-M) and asymmetric (EGARCH, TARCH, and PARCH) conditional heteroscedasticity models. Model performance is evaluated using standard information criteria and residual diagnostics. The results provide strong evidence of persistent and asymmetric volatility in the USD/TRY exchange rate. Among the competing specifications, the TARCH model emerges as the preferred framework, highlighting the significance of power effects and asymmetric shock responses in explaining exchange rate uncertainty over the long run. Therefore, it can be stated that the measures that reduce uncertainty, reinforce monetary policy credibility, and mitigate excessive exchange rate pass-through effects are essential for containing volatility and supporting long-term economic stability.