Inflation, Exchange Rate and Foreign Trade: Long And Short Run Relationships In The Turkish Economy

Inflation, exchange rate, imports, exports and GDP per capita are key indicators that play a key role in assessing the health and stability of a country's economy. Inflation directly affects price stability and purchasing power, while the exchange rate has a significant impact on international trade and capital flows. Imports and exports reflect an economy's trade balance and competitiveness, while GDP per capita is an important indicator of economic growth and welfare. Understanding the relationships between these variables is of great importance for the effective design of economic policies. The aim of this study is to analyze the relationships between inflation, exchange rate, imports, exports and GDP per capita in the Turkish economy between 1994 and 2023 and to reveal how these variables affect each other and their long-run equilibrium relationships. In this context, the study examines the long-run relationships between the variables using the Johansen Co-integration Test and analyzes the short-run dynamics with the Vector Error Correction Model (VECM). The findings of the study show that there are long run cointegration relationships between exchange rate and imports, exports and GDP per capita. However, no significant cointegration relationship was found between inflation and exchange rate and exchange rate and exports. This can be explained by the fact that inflation is affected by structural problems and exogenous shocks, while exports are dependent on global demand conditions and imports. Short-run dynamics reveal that exchange rate fluctuations increase import costs, while there is a bidirectional causality relationship between exports and GDP per capita.