The Effect of Exchange Rate Volatility on Turkish-Russian Bilateral Trade: A Vehicle Currency Approach

Abstract

This is the first study investigating the effect of exchange rates on bilateral trade between Turkey and Russia by using monthly data for the period 2010:M1-2016:M9 via vehicle currency approach. In this study, we find both Turkish exports to Russia and imports from Russia are cointegrated with exchange rate, exchange rate volatilities, Baltic Dry Index, consumer price indexes and retail sales indexes. In the long run, exchange rate decomposed by means of a vehicle currency affects our exports and imports positively via an increase in ruble and Turkish lira (TL) volatility. In the short run, an increase in TL volatility boosts our exports.