THE IMPACT OF EXCHANGE RATE VOLATILITY ON EMPLOYMENT: EXPERIENCE OF TURKEY IN THE 2000s¹.

Resulting the February 2001 crisis, Turkey switched to floating exchange rate system in the early 2000s. In theory, it is accepted that the floating exchange rate system not only absorbs shocks but also provides freedom in monetary policies for the central bank. In recent decades, however, variations in exchange rates and volatility have been larger than that of predicted by theoretical models, especially in the developing countries. Based on autoregressive-distributed lag (ARDL) bound test method, this article investigates the impact of exchange rate changes and volatility on the level of employment in Turkey by using quarterly data for a sixteen-year period covering 2004:Q1-2020:Q1. AR (1)-TGARCH (1,1) technique was used to measure exchange rate volatility. According to ARDL bound test results, while increases in exchange rate positively affects the level of employment, the exchange rate volatility affects it negatively. In addition, rise in exports provides positive support to the growth in employment level. Lastly, there is an inverse relationship between interest rates and employment level. These results indicate that the development in economic circumstances provides positive support to the investment enthusiasm of economic decision makers and that growing business volumes increase the number of employed people. [ABSTRACT FROM AUTHOR]