Abstract:

Central banks interfere with the currency market, especially in developing countries, in order to reduce the scratch in the currency market or to prevent attacks that lead to excessive volatility in the currency market. However, any intervention can cause deviations from the value of the currency to be determined by the market. The aim of this study is to identify the pressure of supply and demand in the Turkish currency market. In this direction, the index of the exchange market pressure is used to measure the pressure on the exchange market in economic literature. This index can be created in three ways: the Girton and Roper approach, the theoretical approach and the model-independent approach. In this study, the exchange market pressure index was created according to theoretical approach. Despite the use of four different equations in the creation of the index, it is sufficient to estimate the simple money demand and relative purchasing power hypothesis equations in the calculation of the index. The quarterly data was used in the analysis and covers the period 1990:01-2017:22. The time series used in the forecasts, although they contain unit roots, have been passed to the forecast stage because there is a matching between the series that form the equations. Because there is a problem with the internal variable in these equations, both the simple money demand and the relative purchasing power hypothesis equations are predicted by the two-stage smallest quarter method. According to the forecast results, in the last period of 1993 to 2002, the pressure on the exchange market was excessive, and the pressure on the exchange market was decreased after the establishment of the flexible wave currency system. Also, as the index shows excessive volatility before economic and political crises, it can be used as a leading indicator for future crises.

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