Real Exchange Rate Volatility in the Presence of Financial Fragility and Central Bank Intervention in Turkey

Abstract

The purpose of this paper is to investigate whether the balance sheet of the private sector has played a role in the volatility of the real exchange rate in Turkey after the capital account liberalization in 1989. The results of this paper indicate that the rise in the short-term and non-financial sector debt as a ratio to GDP has significantly increased real exchange rate volatility in the post-crisis period. Another result is that the Turkish central bank has intervened in the foreign exchange markets to lower real exchange rate volatility by mitigating the adverse impact of financial fragility indicators.