By the previous studies, exchange ratefluctuations have been considered to be an important factor affecting the realsector of economies as economies have become more open. Most of the studiesfocused on its trade impact, however, through different channels, exchange ratemovements can also influence the unemployment. This study aims to analyze theeffect of exchange rate and its volatility on unemployment for Turkey over theperiod from 2005 to 2019 by using quarterly data. As a solution for possible endogeneityproblem, VAR analysis was performed. Results show that although exchange ratefluctuations do not affect the unemployment, exchange rate volatilitysignificantly increases unemployment. Moreover, positive output shockscontribute statistically significantly to the reduction of unemployment in linewith Okun’s Law. In conclusion, different policy measures should be employed toreduce the exchange rate volatility or its effect on unemployment or both.
DOI: https://doi.org/10.18074/ckuiibfd.626327
Publish Year: 2020
