The Effect of Non-residents’ Portfolio Investment on Exchange Rate: Evidence from Turkey

摘要

The purpose of this study is to analyze the short term effect of non-residents’ portfolio investment on nominal exchange rate in Turkey by using Vector Autoregression (VAR) methods. The analyses were performed with data consisting of 361 observations weekly, covering between 14.01.2005 and 30.12.2011. Two variables are used in the scope of the analyses. The first variable is the non-residents’ portfolio investment and the second variable is nominal exchange rate. At the end of Granger causality analysis, it is seen that non-residents’ portfolio investment is causality of nominal exchange rate. Secondly, impulse-response analysis was performed and seen that nominal exchange rate initial reaction to shock in the non-residents’ portfolio investment is negative and significant statistically. Finally, variance decomposition analysis was performed. Consequently, at the end of econometric analyses, it is seen that non-residents’ portfolio investment has short term effect on the nominal exchange rate in Turkey.