Asymmetric effects of exchange rate changes on Turkish bilateral trade balances

- The bilateral Turkish trade balance with its partners is considered.
- Unlike previous research, we consider asymmetric effects of exchange rate changes.
- We employ the nonlinear ARDL approach.
- Lira appreciation has no effects on the bilateral trade balance.
- Lira depreciation has favorable effects on the trade balance with European partners.

Previous studies that have assessed the short-run and the long-run effects of exchange rate changes on Turkey's trade balance with its major partners relied upon a linear adjustment process that could not find much support for favorable effects of exchange rate changes. In this paper, once we separate real appreciations from real depreciations via the partial sum concept and introduce nonlinearity into the estimation and testing procedure, we show that the effects of exchange rate changes are asymmetric. More precisely, while lira appreciation does not have any significant effects on Turkey's bilateral trade balances, lira depreciation has significantly favorable effects on Turkey's trade balance with its European partners (France, Germany, Italy, Portugal, and Great Britain).