Employment and exchange rate volatility relationship: the Turkish case

Abstract

In this paper, exchange rate volatility and employment relationship is investigated for Turkey covering the period from January 2003 to February 2014 period. Exchange rate volatility is added to the model as an independent variable. In the previous researches, effects of exchange rate volatility have been used as an error term. Different from the previous studies, we added this variable to our model as an independent variable in order to analyze the effects of volatility on employment. In empirical analysis; firstly, co integration relationship between variables is analyzed. Then ARDL model is employed in order to investigate long and short term coefficients. In line with findings of the existing literature, the results of the ARDL model, we employed in this paper; reflect that exchange rate volatility negatively affects the employment. However, we found that the volatility coefficient is statistically insignificant. These results are thought to reflect the dynamics of the market, as the exchange markets are sensible to short term changes while labour markets are based on long term contracts.

Unemployment, Exchange Rate and Exchange Rate Volatility Relation: Analysis for Turkey

“…The results further indicated that negative effect becomes much more severe as export shares and leverage ratio increase. Ay and Ayhan (2016) found negative but statistically insignificant long run and short run impacts of exchange rate volatility on employment for Turkey over the period from 2003 to 2014. Their results showed presence of cointegration among employment, import, export, industrial production, real exchange rate and real exchange rate volatility.…”

“…Previous empirical studies showed that exchange rate appreciation (depreciation) influence labor markets, significantly and negatively (positively) (see for example, Branson and Love, 1988;Edwards, 1989;Revenga, 1992;Burgess and Knetter, 1998;Gourinchas, 1998;Gourinchas, 1999;Goldberg and Tracy, 2000;Campa and Goldberg, 2001;Klein, Schuh and Triest, 2003;Bilgin, 2004;Ribeiro et al, 2004;Frenkel and Ros, 2006;Milas and Legrenzi, 2006;Galindo et al, 2007;Chang, 2010;Demir, 2010;Moser, Urban and di Mauro, 2010;Nucci and Pozzolo, 2010;Boz, 2013;Ayhan, 2016;Ay and Ayhan, 2016;Mpofu and Nikolaidou, 2018;Usman and Elsalih, 2018). In contrary to these studies, Berument, Dogan and Tansel (2006) and Bakhshi and Ebrahimi (2016) found that exchange rate devaluation and depreciation increase unemployment.…”

“…Islam and Hengge (2015) provide a brief literature review on this relationship in the context of employment. Ay and Ayhan (2016) also reviewed empirical literature on the relationship between employment, exchange rate and exchange rate volatility. Using various models and assumptions, theoretical studies showed labor market effects of exchange rate movements and uncertainty (Rama, 1992;Obstfeld, 1997;Gourinchas, 1998;Gourinchas, 1999;O'Shaughnessy, 2000;Belke and Setzer, 2003;Belke and Kaas, 2004;Bekkers and Francois, 2014;Choi and Choi, 2018).…”

The Real Effective Exchange Rate and Industrial Employment: The Turkish Case

“…Employment in seven of the manufacturing R. C. Akkay industries indicates a positive response to the real appreciation while 18 of them show a negative response. Ay and Ayhan (2016) state the negative impact of the exchange rate volatility on the employment level. Alexandre (2017) finds out that the market rigidity decreases the exchange rate elasticity of employment in different industries.…”

“…(Mishra et al 2014) 5. Ay and Ayhan (2016), and Usman and Elsalih (2018) use monthly data in their empirical researches.…”