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Dynamic Linkages between Germany Trade Trends and Export of Turkey: Evidence from DCC-GARCH Model and News Impact Curves

Journal: Efil Ekonomi Araştırmaları Dergisi (Vol.4, No. 3)

Publication Date:

Authors : ;

Page : 18-37

Keywords : DCC-GARCH model; News Impact Curves; Germany; export; trade; conditional correlation;

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Abstract

As a long-term investor and trade partner of Turkey, Germany has significant importance for the development of the Turkish economy. The novelty of this study is that we tried to forecast the export pattern of Turkey based on the interdependency with Germany. In our analysis, we tried to explain trends in intermediate and consumer goods export of Turkey separately by including major German trade indices in the model equations. In this context, we employed Dynamic Conditional Covariance (DCC)-Generalized Autoregressive Conditional Heteroscedasticity (GARCH) methodology to examine time-varying correlation and volatilities of intermediate goods and consumer goods exports. We also enriched our results with News Impact Curves to understand the characteristics of intermediate goods and consumer goods export volatilities. Our first finding is that intermediate goods export is less autocorrelated compared to consumer goods export. Secondly, we found that the exchange rate has a volatility-increasing impact for consumer goods export while the same results are not valid for intermediate goods. Thirdly, goods news has a bigger effect on volatility than a negative shock of the same magnitude for intermediate goods while bad news has more impact on consumer goods export volatility. Finally, the conditional correlation between intermediate export goods and consumer export goods is high time-varying across the period of years

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Last modified: 2021-12-06 23:12:29