Abstract:

While the variations in the real exchange rates of a counforeign trade, any variations in the import and export, as fundamental components of foreign trade, also influence the exchange rate. Because import goods will get relatively more expensive and export goods will get relatively cheap when the real exchange rate rises, it is expected to have a positive reflection on foreign trade balance. Otherwise the country would experience a foreign trade deficit. Foreign trade deficit is a problem that developing countries frequently face. The exchange rate policy followed becomes prominent in the elimination of such problem. The relationship between the real exchange rate and foreign trade balance has been made the subject for various studies by economists. In this study, the relationship betwerate and its foreign trade balance was investigated. For the determination of the magnitude of the relationship, ARDL testing was conducted in the light of monthly data belonging to the period of 2000:1-2015:12. According to the analysis results, it was observed that there is cointegration relationship between real exchange rate and foreign trade balance. For the presence of cointegration points out to at least one causality relationship, Toda-Yamamoto causality testing was conducted and a unilateral causality was defined from real exchange rate towards foreign trade balance

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